Articles/megaposts by DaveT

[DaveT]

Great to hear, especially given that you had already been driving a Model S for years.

It's going to be really interesting to see how much of that "on a different level" translates to the base Model 3, with or without autopilot. This could mean breaking through and pulling in large amounts of people from the most popular vehicles for families with mid range incomes (Accord, Fusion, Camry, etc.).

Dave, I don't know how realistic a thought experiment this would be without having seen the base model yet, but, I'm wondering if you have any thoughts on how much of this Model 3 "wow" factor will translate to an SR car, how much of it is AP,...

The base Model 3 ($35,000) with no options is going to be an absolute killer car. Completely beyond expectations. It's basically my Model 3 with less range, no autopilot and a few less options.

It's also amazing to me how little general awareness exists of the Model 3, Mass awareness of the Tesla Model 3 is still very low, and what that means for Tesla’s growth prospects .

Yesterday my wife was meeting several friends with the Model 3, and not even one of them knew about the Model 3. They all knew Tesla, but not the Model 3.

We're going to see a massive, massive shift in public opinion toward Tesla when people realize Tesla makes an affordable car within their price range and it's amazing. The next few years is going to be fun.

 

[wdolson]

Most of the Model 3 reviews I've seen, the people don't quite get the Model 3. They think it's a good or great car, but they fail to realize how significant the car really is.

I've seen the reaction after people experience the Model 3, "Oh my, BMW is dead." I think though they can't fully express the reasons sometimes, they know intuitively that the Model 3 is on a completely different level of experience that is far superior to BMW.

Occasionally I read a review or comment from someone who gets the Model 3. For example, Dave Morin: Tesla Model 3 is by far the single best product I have ever experienced .

Owning the Model 3 has profoundly changed my view of Tesla. I think Tesla is on a different level than most people think, even most people reading this right now.

What Tesla has accomplished in the Model 3 is truly amazing. It's not just one thing. Rather it's the combination of hundreds of things put together, that ultimately make the experience of the car far superior to anything in its price range. And for a lot of people, they won't appreciate the hundreds of things that make it far superior until they own one for several months. For some, they'll understand it much sooner.

It all reminds me of the iPhone and the reactions people had when it first came out. Most people really couldn't grasp it. They passed it off as an overpriced gadget.

I've been saying for a while now that once the backlog of pre-orders for the Model 3 gets delivered and they start showing up in middle class neighborhoods around the US and then the world, the shift will start. I've argued with some who say the main competition for the Model 3 are luxury sedans like the BMW 3 Series, but I've thought all along it's the mainstream family sedan market of the Camry, Fusion, Accord, etc.

A fairly large percentage of people who buy those cars today could probably buy a BMW 3 Series if they wanted to, but they don't see the point. You get a bit sportier with some of the luxury sedans, but mostly what you are paying for with those cars is the nameplate. If Ford made a car that matched a BMW 3 Series in every way and cost the same, few people would buy it because Ford doesn't have the prestige of a BMW.

Now comes along an all new type of car that happens to be priced like a luxury sedan, but it's a completely different animal from anything that has gone before. Once they know about it, a lot of those people who normally drive family sedans are going to give it a serious look. Especially if the cost of ownership is a lot cheaper.

A poll of Model S owners done in 2015 or 2016 found that over 50% of Model S buyers had never owned a car worth over $65K before. I'm one of them. I paid $21K for my last new car before I bought my S. Tesla upsold me in a big way. I was looking in the $30-$40K range and wasn't finding anything that met my criteria (which I thought was modest). Then I looked at the Model S and it blew every one of my criteria out of the water.

That phenomenon is going to happen down market too. That's why the European car makers are the most serious about developing EVs. They saw what the Model S did to their high end luxury sales and they fear their mid-priced range is going to go up in smoke too.

Tesla had to get production of the Model S to a point where someone could get a car in the US in a month, or overseas in about 3 before the other luxury brands really started hurting, but it now dominates its niche. The Model X is doing the same to the SUV niche it's in. It took about 3 years for the Model S to get to a point of being competitive. It might take 2-3 for the Model 3.

Even if Tesla ends up back ordered for the Model 3 when the demand spikes, the fact that someone can walk into a store or go online and configure and order immediately will start the collapse of ICE family sedan sales. When the Model Y hits the market the same will happen with the family SUV/CUV market too after they get through the pre-sale backlog.

Tesla today is the only EV that has any following outside of the EV enthusiast universe. I know lots of people who want a Tesla, but wouldn't touch another brand of EV. One friend has a rickety old Ford Focus and she's said her only options for cars is keeping the old Ford Focus running, or a Model 3/Y. Nothing else.

To be honest, I really wouldn't give serious consideration to any other EV out there. The Bolt is the only one with the range, but the seats are a non-starter for me. The lack of reliable long distance charging would also limit its usefulness.

 

[sweter]

I completely and fully agree with all the above. And I think there's more.

When I think about people who I know who have BMW's and similar cars, they're all car lovers. They get excited about cars, about specs and tweak and work on them all the time. Or they want to show off on the neighbourhood or get some luxury for their hard earned money. And fair enough.

But there's millions of people like me who don't really give a damn. I've always thought about a car as a means to getting from A to B, maybe with some cargo. When I buy a car I think about price/reliability ratio before any other specs. I don't care about 0-60, red lights are gonna stop me anyway. Sad to say but I can't even do basic maintenance around my car, always need to ask my brother to take it for a day...

But then there is Model 3. Something completely different. I can't even describe what's so different about it. Maybe it "speaks my language" as a millennial? Maybe the fact that there's almost zero maintenance involved? Maybe the fact that I never have to visit a gas station again? Maybe that it has an app? Maybe the clean design with no buttons? Maybe the environmental stuff? I really don't know.

When I think of Model 3 vs other cars I think of Mac vs PC. There's millions of PC users who deeply care about their hardware, their cooling systems, their overclocking, their modding, their drivers and their software tweaks. But there's millions of people who don't and just use a Mac. Both have a place in the universe, but until the Mac computers have been reserved for nerds and geeks and treated as necessity.

I believe this is what will happen in the coming years. A LOT of people are gonna fall in love in their Model 3, but in a different way current car lovers do. A LOT of people will realise that a car has always been a necessity for them and suddenly it will become a pleasure.

That's why I suppose we're not seeing too much of these reflections in current reviews. They're mostly written by car lovers, by PC guys.

 

[wdolson]

I completely and fully agree with all the above. And I think there's more.

When I think about people who I know who have BMW's and similar cars, they're all car lovers. They get excited about cars, about specs and tweak and work on them all the time. Or they want to show off on the neighbourhood or get some luxury for their hard earned money. And fair enough.

But there's millions of people like me who don't really give a damn. I've always thought about a car as a means to getting from A to B, maybe with some cargo. When I buy a car I think about price/reliability ratio before any other specs. I don't care about 0-60, red lights are gonna stop me anyway. Sad to say but I can't even do basic maintenance around my car, always need to ask my brother to take it for a day...

But then there is Model 3. Something completely different. I can't even describe what's so different about it. Maybe it "speaks my language" as a millennial? Maybe the fact that there's almost zero maintenance involved? Maybe the fact that I never have to visit a gas station again? Maybe that it has an app? Maybe the clean design with no buttons? Maybe the environmental stuff? I really don't know.

When I think of Model 3 vs other cars I think of Mac vs PC. There's millions of PC users who deeply care about their hardware, their cooling systems, their overclocking, their modding, their drivers and their software tweaks. But there's millions of people who don't and just use a Mac. Both have a place in the universe, but until the Mac computers have been reserved for nerds and geeks and treated as necessity.

I believe this is what will happen in the coming years. A LOT of people are gonna fall in love in their Model 3, but in a different way current car lovers do. A LOT of people will realise that a car has always been a necessity for them and suddenly it will become a pleasure.

That's why I suppose we're not seeing too much of these reflections in current reviews. They're mostly written by car lovers, by PC guys.

I'm much the same about my Model S and cars in general. I've never really been into cars. Their primary purpose was transportation. Some creature comforts were nice, but I could live without most of them. Then the Model S came along.

For me I think it's the engineering. I've done R&D engineering work for 30 years and I know the compromises that almost always go into any design. What blows me away is Tesla managed to get some pretty significant improvements over ICE designs while also reaping some other benefits at the same time. That is a unicorn design in engineering. It just doesn't happen.

It goes to demonstrate how bad ICE really are. Tesla redid a car design from the ground up and came up with something staggeringly better.

Oh and BTW with the "PC vs Mac" thing. The only people who still talk about that are Mac people. Very few people outside of the Mac world refers to any computer as a PC these days. And outside of the business world desktop computers in general are a dying breed. The home users of Windows has dropped in recent years. Enough to force Intel to lay off a lot of people. They did a lot of the microprocessor development in the Portland area and Intel Portland has been hit especially hard.

Outside of the Apple universe, there are basically 2 operating systems: Android (portable devices mostly), Windows (mostly business desktop and laptops), and Linux (servers and hard core geeks). A lot of end consumers only have Android or Apple devices these days. About the only market for Windows desktop machines outside of the business world is with heavy duty gamers. Lunux has proven to be probably the best OS for servers. Most of the internet runs on Linux servers. It's never really caught on outside of the server world. There are some hardcore geeks that run laptops of desktops with Linux, but they not common.

The last of the home desktop buyers are usually people who want to bling out their computers to impress their fellow gamers. The last few cases I've bought have had extra lighting kits, windows in the side, and other useless features I either ignored or disabled. One case with a window in the side (so you can see your mother board for some reason) actually produced enough EMI to cause a problem with other things. I had to line the panel with the window with foil to block the electromagnetic noise.

I have a bunch of desktops running Windows, but I write code for industrial applications for a living. I had a motherboard fail last year and went out looking to see if I could find the same motherboard. I was expecting to only be able to find something in overstock or possibly a good quality used board. I was also expecting it would be likely that I would have to buy a newer board and go through porting the OS to the new hardware (possible but annoying). I was amazed to find the same board I bought 4 years ago was widely available new.

In 30 years of building my own computers I had never seen any critical hardware available new even 2 years after I purchased the original. The pace of development was way too fast. Development in the desktop world has slowed to a crawl. There is new tech out there, especially AMD's new processors and the market for high end video cards is very robust because there is a fair bit of software written for crypto-currency mining systems that use them. Though most of these cards are installed in special systems in server farms.

Ironically the Mac Mini and iMac are probably the only desktop "PCs" that sell in decent numbers anymore. Laptops running Windows still sell OK, but that market is down too. Tablets running iOS or Android can do what most people want out of a laptop and they are easier to carry around. My SO got an iPad Pro for Christmas and she's setting it up to replace her Macbook Pro. The only thing she really needed to make it serve all her needs was an external keyboard. She does a lot of writing for work.

All that said, I do see your point. Both worlds have the people who want to be seen for whatever they own and the rest who just want to get on with things and don't really care that much about the hardware. The latter are buying more for utility and possibly some personal comfort than "look at me".

 

[DaveT]

I'll probably be writing an article on this on my site later this week, but thought I'd share some initial thoughts.

Ford's 2017 annual report:
http://shareholder.ford.com/~/media...and-presentations/2018/F-2017-10-K-report.pdf

“In 2017, we sold approximately 6,607,000 vehicles at wholesale throughout the world.”

145.6B in automotive revenue

means that average revenue per vehicle is roughly $22,000

Gross margin on automotive is roughly 10%

Profit margin (before taxes) is roughly 5%

So let’s put into perspective. For an average priced $22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is $1,100.

So on average Ford makes $1,100 per vehicle.

Let’s look at Tesla and the Model 3.

Tesla is aiming for 25% gross margin on the Model 3 and mid-teens profit margin (let’s say 14%).

The average price of the Model 3 is projected at around $42,000 (but might even be higher if people go with more options).

Average gross margin on a Model 3 would be $10,500 and profit margin would be $5880.

Let’s compare that with Ford’s average vehicle profit margin f $1100. The Model 3 would be 5x as profitable.

In other words, one Model 3 is worth in terms of profits the equivalent of 5 Ford vehicles.

So, if Tesla can sell 500,000 Model 3 and 500,000 Model Y (their small SUV due in 2020), that would be 1M vehicles at an average of 5x the profitability of Ford’s vehicles. So the equivalent would be 5M Ford vehicles.

Let’s add in the Model S/X to the 3 and Y. Let’s say Tesla can achieve 30% gross margin, and a profit margin of 18%. Profit margin on each S/X would be $16,200 (if we assumed a average sale price of $90k). That’s almost 15x as profitable as the average Ford vehicle.

So, 100,000 Model S/X would be the equivalent of 1.5M Ford vehicles in terms of profit.

Combine 1M Model 3/Y and 100k S/X and you have the equivalent of 6.5M vehicles from Ford.

Let that sink in. If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford.

And Tesla would just be getting started.

 

[sundaymorning]

I'll probably be writing an article on this on my site later this week, but thought I'd share some initial thoughts.

Ford's 2017 annual report:
http://shareholder.ford.com/~/media...and-presentations/2018/F-2017-10-K-report.pdf

“In 2017, we sold approximately 6,607,000 vehicles at wholesale throughout the world.”

145.6B in automotive revenue

means that average revenue per vehicle is roughly $22,000

Gross margin on automotive is roughly 10%

Profit margin (before taxes) is roughly 5%

So let’s put into perspective. For an average priced $22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is $1,100.

So on average Ford makes $1,100 per vehicle.

Let’s look at Tesla and the Model 3.

Tesla is aiming for 25% gross margin on the Model 3 and mid-teens profit margin (let’s say 14%).

The average price of the Model 3 is projected at around $42,000 (but might even be higher if people go with more options).

Average gross margin on a Model 3 would be $10,500 and profit margin would be $5880.

Let’s compare that with Ford’s average vehicle profit margin f $1100. The Model 3 would be 5x as profitable.

In other words, one Model 3 is worth in terms of profits the equivalent of 5 Ford vehicles.

So, if Tesla can sell 500,000 Model 3 and 500,000 Model Y (their small SUV due in 2020), that would be 1M vehicles at an average of 5x the profitability of Ford’s vehicles. So the equivalent would be 5M Ford vehicles.

Let’s add in the Model S/X to the 3 and Y. Let’s say Tesla can achieve 30% gross margin, and a profit margin of 18%. Profit margin on each S/X would be $16,200 (if we assumed a average sale price of $90k). That’s almost 15x as profitable as the average Ford vehicle.

So, 100,000 Model S/X would be the equivalent of 1.5M Ford vehicles in terms of profit.

Combine 1M Model 3/Y and 100k S/X and you have the equivalent of 6.5M vehicles from Ford.

Let that sink in. If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford.

And Tesla would just be getting started.

Dave, this is what I have been trying to convey for a very long time. The faster you can publish this article you are working on, the faster the word will spread. Your reasoning, combined with factual numbers will carry much weight than most people here. Please keep up the good work. Imagine when Tesla sells 3m vehicles one day, that’s 15 million Fords.

 

[Zhelko Dimic]

I'll probably be writing an article on this on my site later this week, but thought I'd share some initial thoughts.

Ford's 2017 annual report:
http://shareholder.ford.com/~/media...and-presentations/2018/F-2017-10-K-report.pdf

“In 2017, we sold approximately 6,607,000 vehicles at wholesale throughout the world.”

145.6B in automotive revenue

means that average revenue per vehicle is roughly $22,000

Gross margin on automotive is roughly 10%

Profit margin (before taxes) is roughly 5%

So let’s put into perspective. For an average priced $22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is $1,100.

So on average Ford makes $1,100 per vehicle.

Let’s look at Tesla and the Model 3.

Tesla is aiming for 25% gross margin on the Model 3 and mid-teens profit margin (let’s say 14%).

The average price of the Model 3 is projected at around $42,000 (but might even be higher if people go with more options).

Average gross margin on a Model 3 would be $10,500 and profit margin would be $5880.

Let’s compare that with Ford’s average vehicle profit margin f $1100. The Model 3 would be 5x as profitable.

In other words, one Model 3 is worth in terms of profits the equivalent of 5 Ford vehicles.

So, if Tesla can sell 500,000 Model 3 and 500,000 Model Y (their small SUV due in 2020), that would be 1M vehicles at an average of 5x the profitability of Ford’s vehicles. So the equivalent would be 5M Ford vehicles.

Let’s add in the Model S/X to the 3 and Y. Let’s say Tesla can achieve 30% gross margin, and a profit margin of 18%. Profit margin on each S/X would be $16,200 (if we assumed a average sale price of $90k). That’s almost 15x as profitable as the average Ford vehicle.

So, 100,000 Model S/X would be the equivalent of 1.5M Ford vehicles in terms of profit.

Combine 1M Model 3/Y and 100k S/X and you have the equivalent of 6.5M vehicles from Ford.

Let that sink in. If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford.

And Tesla would just be getting started.

BMW with 2M vehicles a year is worth more than Ford/GM etc, so those are kind of economics that are much closer and better comparisons to Tesla as an automaker. But BMW/Daimler etc are less known to investors, not being part of US exchanges...

 

[DaveT]

Dave, this is what I have been trying to convey for a very long time. The faster you can publish this article you are working on, the faster the word will spread. Your reasoning, combined with factual numbers will carry much weight than most people here. Please keep up the good work. Imagine when Tesla sells 3m vehicles one day, that’s 15 million Fords.

I need a good title for this article. Currently I've got "Why one Model 3 is worth the equivalent of 5 Ford vehicles in terms of profit", but I don't think the title is very good. Any suggestions?

 

[LargeHamCollider]

"1 Tesla equals 7 Fords"

I don't know if 7 is the actual combine number for SX3 but it should be in hat ballpark.

 

[SteveG3]

I'll probably be writing an article on this on my site later this week, but thought I'd share some initial thoughts.

Ford's 2017 annual report:
http://shareholder.ford.com/~/media...and-presentations/2018/F-2017-10-K-report.pdf

“In 2017, we sold approximately 6,607,000 vehicles at wholesale throughout the world.”

145.6B in automotive revenue

means that average revenue per vehicle is roughly $22,000

Gross margin on automotive is roughly 10%

Profit margin (before taxes) is roughly 5%

So let’s put into perspective. For an average priced $22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is $1,100.

So on average Ford makes $1,100 per vehicle.

Let’s look at Tesla and the Model 3.

Tesla is aiming for 25% gross margin on the Model 3 and mid-teens profit margin (let’s say 14%).

The average price of the Model 3 is projected at around $42,000 (but might even be higher if people go with more options).

Average gross margin on a Model 3 would be $10,500 and profit margin would be $5880.

Let’s compare that with Ford’s average vehicle profit margin f $1100. The Model 3 would be 5x as profitable.

In other words, one Model 3 is worth in terms of profits the equivalent of 5 Ford vehicles.

So, if Tesla can sell 500,000 Model 3 and 500,000 Model Y (their small SUV due in 2020), that would be 1M vehicles at an average of 5x the profitability of Ford’s vehicles. So the equivalent would be 5M Ford vehicles.

Let’s add in the Model S/X to the 3 and Y. Let’s say Tesla can achieve 30% gross margin, and a profit margin of 18%. Profit margin on each S/X would be $16,200 (if we assumed a average sale price of $90k). That’s almost 15x as profitable as the average Ford vehicle.

So, 100,000 Model S/X would be the equivalent of 1.5M Ford vehicles in terms of profit.

Combine 1M Model 3/Y and 100k S/X and you have the equivalent of 6.5M vehicles from Ford.

Let that sink in. If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford.

And Tesla would just be getting started.

Dave, this is a very strong post.

A couple of considerations... essentially, when you add in the difference in growth rates between Tesla and the other automakers, this sort of analysis accounting for ASP and net profit margins can be done with pretty much all automakers to show that the "crazy valuation" narrative has always been false, and is just a result of leaving out core data from comparisons of current automaker metrics and projections for Tesla several years down the road. No issue with the bears trying to make their case as to what reasonable future projections for Tesla are and are not, but the practice of ignoring ASP, net profit margins, and growth rates is and for years has been intellectually dishonest gibberish, most notably in the form of the "market cap per car" meaningless data point often mentioned.

Other consideration, you may or may not want to incorporate with this analysis- Ford may sell about 6.6 million vehicles annually, but the lion's share of the profits come from a minor portion of those vehicles. None of the automakers share these details as far as I know, but, one of the analysts, I believe Adam Jonas, has said in the past that his sense is something like 90% of the profits come from the big trucks and SUVs (don't remember if he was referring to GM or Ford, but, it's quite likely that it is the same for both). That is... there are millions of vehicles the "big boys" sell at more or less breakeven, maybe less. This is consistent with GM selling 1.2 million in annual vehicle production of the Opal and Vauxhall brands to Peugeot for just $2.3 billion last year (actually, if I understood the details I just googled, GM actually took on something like $5-7 billion in responsibility for things like pensions in exchange for Peugeot taking these two off their hands), and some in the media have suggested recent Ford comments hint that they are getting out of the business of selling sedans altogether.

 

[SteveG3]

I need a good title for this article. Currently I've got "Why one Model 3 is worth the equivalent of 5 Ford vehicles in terms of profit", but I don't think the title is very good. Any suggestions?

maybe something like, "Value Tesla as an automaker? Sure, just don't quit halfway through the math"

 

[ggr]

I need a good title for this article. Currently I've got "Why one Model 3 is worth the equivalent of 5 Ford vehicles in terms of profit", but I don't think the title is very good. Any suggestions?

"A Tesla in the hand is worth five Fords in the bush."

 

[Jonathan Hewitt]

"A Tesla in the hand is worth five Fords in the bush."

How big are your hands? Or are we talking about the Hot Wheels Teslas?

Want a toy Tesla, like the one that launched with 'Starman'? eBay has them for $1,500

 

[ggr]

How big are your hands? Or are we talking about the Hot Wheels Teslas?

Want a toy Tesla, like the one that launched with 'Starman'? eBay has them for $1,500

Wow... I have four of them (and a Ferrari).

 

[MitchJi]

Hi Dave,

Congratulations!

You are absolutely killing it with your recent articles at Home (teslaweekly.com)!

You've taken your understanding and writing to a new level!

 

[immunogold]

“Profit per car for Tesla vs other Manufacturers”

 

[sundaymorning]

I need a good title for this article. Currently I've got "Why one Model 3 is worth the equivalent of 5 Ford vehicles in terms of profit", but I don't think the title is very good. Any suggestions?

“A single Model 3 is worth 5 Ford vehicle profits.”
Personally I think your title is great, you should keep it.

 

[dw4ngg]

I need a good title for this article. Currently I've got "Why one Model 3 is worth the equivalent of 5 Ford vehicles in terms of profit", but I don't think the title is very good. Any suggestions?

Coin a new stat -

"Profit Price per Vehicle: Tesla's Shareholder Value Accelerates Quicker than its Cars"

 

[mrdoubleb]

I don't know Dave, your math is really out there. I've been reading Tesla is losing thousands of dollars on every car it produces and the more they'll build, the more they'll lose.

In all seriousness though, the narrative around the company should change considerably once production is big enough for its size. In other words, Tesla in 2017 was a 100k volume car company, but the infrastructure, sales and R&D spend was for a company much bigger than that.

More than anything, Model 3's volumes should fix that imbalance and more and more people outside TMC will come to the same conclusion you have.

 

[bdy0627]

I need a good title for this article. Currently I've got "Why one Model 3 is worth the equivalent of 5 Ford vehicles in terms of profit", but I don't think the title is very good. Any suggestions?

I would suggest just dropping the last 4 words for a cleaner title. Let people read the article to find out why.