2017 Investor Roundtable:General Discussion

[Phrixotrichus]

Its great news once again as the "disbelieve" we will experience the next days from the industry is another positive indicator for real disruption. I do imagine we will see a lot of press coverage the next days and weeks claiming that Tesla will lose money with every truck sold in the future. A ridiculous assumption....

Oh we do see a lot of press coverage but more of the....
- "Model 3 production still a disaster, Musk trying to distract investors with new promises for roadster and semi"
- "Tesla probably bankrupt in august next year"
- "Tesla burning 8k per minute"

yadda yadda yadda

I have to admit that I´m still nervously waiting for the next model 3 production numbers, though. The usual doom and gloom is starting to get to me a bit.

 

[bambam4171]

It's quite apparent from the Q3 Letter. Automotive gross margin was 27.9% in Q2 but dropped to 18.3% in Q3. What changed? Model 3 deliveries began. This means that you start calculating in depreciation of the production equipment and similar stuff.

In dollars, the drop was from 638 million to 442 million, or 192 million. Assuming 150 million of that is the Model 3, and factoring in that 222 Model 3 were sold at around 60.000 USD, the gross margin should be around -1126%.

They also basically say it in the letter:

"We expect Model 3 non-GAAP gross margin to reach breakeven by end of Q4, because of increased capacity utilization, and it should improve rapidly in 2018 to our target of 25%. Our recent production challenges may affect short-term costs, but they have no impact on our 25% gross margin target, since there has been no change to our projections for material, labor and overhead costs per vehicle."

If it will reach breakeven in the future, it is not currently at breakeven.

Please re-read what you have written.
1. You say they get 442 m Gross marging. So how does that constitute a loss per vehicle?
2. Of course will the cost of a production line that is running at 1/100th of its capacity negatively impacting EGM. How could it not be?
3. The negative effect you talk about is limited to Model 3 only and even though they have this negative effect see point 1.

 

[Yggdrasill]

Please re-read what you have written.
1. You say they get 442 m Gross marging. So how does that constitute a loss per vehicle?
2. Of course will the cost of a production line that is running at 1/100th of its capacity negatively impacting EGM. How could it not be?
3. The negative effect you talk about is limited to Model 3 only and even though they have this negative effect see point 1.

I never said they were losing money on *every* car. They're losing money on *some* cars, namely the Model 3's.

My point was that this isn't capex/investments. This is necessary losses for the ramp-up phase.

 

[bambam4171]

I never said they were losing money on *every* car. They're losing money on *some* cars, namely the Model 3's.

My point was that this isn't capex/investments. This is necessary losses for the ramp-up phase.

Agree with you on that, probably just my misunderstanding then

 

[jbcarioca]

"There are none so blind as those who will not see"
attributed to John Haywood 1546

That explains why people refuse to understand GM and the impact of rapid growth on GAAP P&L. Different issues.
Why does Tesla have little problem raising money when they need to?
Because most investors understand cost accounting.

The Bob Lutz school of thought is similar. refuse to look at facts and insist black is red.
There are enough potential pitfalls for TSLA investors without uttering outright falsehoods, whether through ignorance or intent.

 

[SwTslaGrl]

With investment in production lines etc we have had info in Swedish public media for at least 40 years. For example Airbus introduce a new aircraft and have 80 pre-orders, but they need 100 pre-orders for breakeven on this product. The same for new car models from Saab and Volvo, a new model needs 3 years full production for breakeven etc. I thought knowledge about how companies work was general education..

 

[WarpedOne]

This is necessary losses for the ramp-up phase.

Why is this word "necessary" never mentioned? It is just the mantra "they lose money per car".

If it is a necessary thing, why even point it out as something worth talking about? It is just data, not information.
Information would be "they can't use this equipment, they have to buy new". This could be actual loss worth talking about.

Partial information is misinformation.

 

[avoigt]

Thinking why they increase the reservation deposit 4 times....

The team may have looked at the incoming reservations after the Semi Event and the industry expectations of the Semi price. They concluded that reservations exceed expectations very much and decided to quadruple the deposit as they could anticipate with the now to be released low pricing the reservation numbers will be much higher than planned.

This has 3 advantages

#1: optimizing the incoming cash rate - improving the required capital for M3 ramp in 2018
#2: reducing the incoming reservations to avoid crazy long delivery times
#3 indicating to the market that the Semi is received well

The interest free loan they get from the market together with burn rate, new investments, roadster reservation deposits and ramp up of M3 I would expect them not to need ray any capital until Q3/Q4 2018. At that stage I expect the M3 production to be almost in full swing enabling them to avoid further capital needs for running operation.

Obviously this is all pure speculation.

 

[Bobfitz1]

I'm confident Tesla has done far more homework and with far more information than any of us could hope to have and the Megachargers will in an absolute worst-case scenario break even and more likely be a marginal revenue generator.

You and Snapdragon are exactly right. It's kind of pointless this early, with the information available, to try and calcullate everything out and fret that they'll lose money from Megacharging promises. Especially using the assumption that Elon's 7 cents per Kwh is carved in stone.
Semi customers aren't going to riot if it initially costs 10 or 12 cents, as long as there are TCO savings to more than cover the higher initial cost. Five or more years out, as PV and storage costs get cheaper year by year, 7 cents will be realized.
Trucking companies saving once they can have one or two drivers platoon some number of self driving Semi's will be huge savings both from reduced Kwh and reduced labor costs.

 

[RiverCard]

I'm still having a hard time understanding how a Founders Series Semi costs 20% less ($50k) than a Founders Series Roadster but yet it has ~500% more battery capacity, 33% more motors, an air brake system, more AP cameras, 2x the number of touch screens, etc.

Two less seats

 

[Bobfitz1]

If there is such super duper demand for Semi, sane thing to do is to increase the semi price, not low ball the price to attract more deposit right now. Sounds like desperation to get money right now by selling the future.
Didn't someone report a price of $250k earlier, or am I mistaken?

Not to worry. You're only mistaken 99% of the time. Put in some work and you can get up to broken clock level. Right twice a day.

 

[Krugerrand]

So: Elon and Tesla CAN do stuff on time!

The motivation being: ...or it’s free.

 

[MitchJi]

It could be-more automation may improve quality and allow for more refined design concepts. on the other hand, if they are only making 1000 to 5000 cars a year, greater automation may not make financial sense.

I believe that you are seriously underestimating the demand for the Roadster.

 

[Waiting4M3]

Thinking why they increase the reservation deposit 4 times....

The team may have looked at the incoming reservations after the Semi Event and the industry expectations of the Semi price. They concluded that reservations exceed expectations very much and decided to quadruple the deposit as they could anticipate with the now to be released low pricing the reservation numbers will be much higher than planned.

This has 3 advantages

#1: optimizing the incoming cash rate - improving the required capital for M3 ramp in 2018
#2: reducing the incoming reservations to avoid crazy long delivery times
#3 indicating to the market that the Semi is received well

The interest free loan they get from the market together with burn rate, new investments, roadster reservation deposits and ramp up of M3 I would expect them not to need ray any capital until Q3/Q4 2018. At that stage I expect the M3 production to be almost in full swing enabling them to avoid further capital needs for running operation.

Obviously this is all pure speculation.

The SA conspiracists will say that Elon and co are low balling the price on the Semi, jacking up the reservation price, in order to lure in as much as cash as they can now because M3 situation is desperate, and that this is just what they would do in a pyramid scheme. The problem in this conspiracy theory is no one who's ever been in a pyramid scheme who plans to high tail out of the door has ever worked as hard as Elon has. Elon may be too optimistic on timelines, but Tesla has always delivered their product, and always had positive GM on them. I'm confident that in time, the pricing point of Semi, Raodster, Megacharger will all be vindicated, and the price/performance on them will look pedestrian 5-10 years from now, because no one will remember how bad diesel trucks were.

Personally I suspect the most likely reason behind the low price of Semi is a confluence of battery pack production efficiency and chemistry improvement. I also suspect that the production efficiency gain will show up in M3 GM, and we'll be pleasantly surprised. If they can reduce M3 pack cost by $20/kwh, they would make an extra $1000-$1500 on each M3 depend on SR or LR, and average saving of $1200 * 250K M3 in 2018 would mean $300M added to the bottom line.

 

[kbM3]

I believe that you are seriously underestimating the demand for the Roadster.

Ferrari, the most successful exotic company only sells 7k / yr. Limited market and some current owners will not give up the engine sound.

On the flip side, Tesla will expand the market.

Here’s to you being right

 

[MitchJi]

Dragtimes does a walk around of the Tesla Semi.

The back looks like it came out of the Tumbler from The Dark Knight movie set. I hope Chris Nolan borrows a few M3 motors for the next Dark Knight movie.

Drag times: No sleeper?

Tesla rep: Not in this version.


Tesla is planning multiple versions, not limited to a model with a sleeper.

 

[Waiting4M3]

Ferrari, the most successful exotic company only sells 7k / yr. Limited market and some current owners will not give up the engine sound.

On the flip side, Tesla will expand the market.

Here’s to you being right

OTOH Ferraris are like the BMW 3-series of the super cars (or Civic of the economy cars), everyone has one. But more so than BMW and Civic buyers, I think super car buyers will want the latest, greatest and coolest.

 

[AnneBoleyn]

Saw this driving to work with TT007 yesterday. We took a little video. At first we said “oh cool another Tesla” as there are only a handful where we live.. this was pretty close to super charger so not unheard of... I said wait “what is that?” And he said “it’s an X same as ours, and went back to trading on the the Tesla screen. Then I pointed out “no, that’s too small... it can’t be an X..” we both looked at each other and said wait- it’s a 3!! May not be a big deal- but you would have thought we had spotted a unicorn. Mostly because this car has been the speculation and hopes of our separate portfolios (to which he manages both). Seeing it driving around made us feel a little more certain of that blind faith TT007 has in Tesla and accordingly- it’s stock. Anyway, he wanted me to post. Happy Thanksgiving!

 

[MitchJi]

Looks like AWD might be available for me too in the Spring & i'm no Bonnie .
View attachment 261965

You gain a month for being a Tesla owner. I’m not and my quoted window is one month later than yours.

If my LEAPS increase in value during the one month interval I might make more than my M3 costs by waiting the extra month .

 

[hobbes]

View attachment 262289 View attachment 262282
Saw this driving to work with TT007 yesterday. We took a little video. At first we said “oh cool another Tesla” as there are only a handful where we live.. this was pretty close to super charger so not unheard of... I said wait “what is that?” And he said “it’s an X same as ours, and went back to trading on the the Tesla screen. Then I pointed out “no, that’s too small... it can’t be an X..” we both looked at each other and said wait- it’s a 3!! May not be a big deal- but you would have thought we had spotted a unicorn. Mostly because this car has been the speculation and hopes of our separate portfolios (to which he manages both). Seeing it driving around made us feel a little more certain of that blind faith TT007 has in Tesla and accordingly- it’s stock. Anyway, he wanted me to post. Happy Thanksgiving!

Cool! So where´s the video ?!!