Devils advocating...from someone who shorted TSLA

[Causalien]

My question for naysayers is a lot more simple and so far, nobody has answered me. What made you join a forum dedicated to a technology you dislike. I cannot wrap my mind around it. If I hate something (ex Justin Bieber) I stay as far away as possible from their fan pages. People do things because there's happiness to be found. For me there's happiness in seeing a new technology succeed. What is in it for naysayers? I'd thought you would do the bashing in an ICE enthusiast forum like Ford or something. Are there EV people in Ford forum bashing ICE?

Just curious from psychological stand point.

 

[TSLAopt]

I read everything on Tesla, even the non stop SA bashing articles. I have actually seen a couple of comments from you in the past week that could almost be taken as positive, I almost replied to them and congratulated you. Let's take Peterson for example, he is so clearly against Tesla that you can't take anything he says seriously. He moves from one aspect of the company to the next. It's like right wingers that can say nothing good about Obama, ever. Really, he has never said or done one thing that you agree with? not possible.

My point wasn't to get emotional with the stock, or this company in particular. My point was that the naysayers don't get the change that has and is happening when it comes to the environment, wanting to get off oil etc. I'm not discounting your battery math, but I haven't done my own in depth, exhaustive research other than reading every opinion that has been presented on the subject. However, I'm an optimist, and I look at history. This problem will be solved like every other problem has been solved. I'm willing to risk the money I have in TSLA that my optimism will be rewarded, life is so much happier this way.

What I don't get is, if your a bear on TSLA at the moment, why waste so much energy? Place your bet and sit back and enjoy your profits if your that confident. The fact that your on here all day long and comment on every negative SA article downgrading tesla and the stock, tells me your not all that confident in your position. Short term the bears may get some of their money back, but most around here believe in the long term and are willing to wager on it. I tend to not listen to people that never have anything good to say about anything, I would rather go sit in the garage with my ICE running.

+10000
seems strange to me too. My guess TFTF is a hired troll by shorts or some big autocompany or dealers association because I can't imagine why he spreads so much subtle-FUD otherwise.
i tried to private message him once to see if I could get an honest answer and he did say he ges paid by people.

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My question for naysayers is a lot more simple and so far, nobody has answered me. What made you join a forum dedicated to a technology you dislike. I cannot wrap my mind around it. If I hate something (ex Justin Bieber) I stay as far away as possible from their fan pages. People do things because there's happiness to be found. For me there's happiness in seeing a new technology succeed. What is in it for naysayers? I'd thought you would do the bashing in an ICE enthusiast forum like Ford or something. Are there EV people in Ford forum bashing ICE?

Just curious from psychological stand point.

+10000 too.
it's very bizarre. There are so many big institutions that want to see or need to see TSLA fail that it makes sense there are lots of smear campaigns being conducted against TSLA by these institutions. Sad but true.
in the end it helps TSLA but it is sad to see all the negativity that an be created by people on what really is a very positive change for society.

 

[tftf]

My question for naysayers is a lot more simple and so far, nobody has answered me.

This requires a longer answer

I don't dislike EVs as a technology in general. I don't think this is a black and white decision of EV vs ICE vs fuel cells, even hardened skeptics think EVs or PHEVs are better in some use cases (since more and more people have now driven an EV).

I joined this site to discuss why the stock was overvalued in my opinion (especially when it was close to $200 in September and warned of institutions reducing their positions vs retail investors). One has to separate the company from the stock price in my opinion, just because I think the stock price is too high doesn't mean I dislike (or even "hate") the company.

Finally, I wanted to stress the importance of battery supply issues facing TSLA/all EVs and discuss the estimates/numbers.

I think battery manufacturing (supply) challenges were under-reported and barely discussed compared to overblown short-term challenges (fires etc.).

Without more giant battery factories being built worldwide, there will never be enough supply for 10% (or even higher) of all new cars to be EVs. Some simple calculations assuming long-range EVs take off to illustrate my point:

100 million new cars/year (assuming demand in Asia continues to grow with new first-time buyers/rising middle class, this is likely. The current number is at 85 million new cars produced per year).

Let's assume 80 million of those are new passenger cars/year (currently at around 65 million cars/year)

Let's assume 10% of those are long-range EVs with 4000 cells each (assuming TSLA's model of using small cells and Ah improvements/cell)

8 million cars x 4000 cells = 32 billion cells needed per year.

As we know TSLA already (as of late 2013) is one of the largest buyers of Li-Ion cells worldwide and it currently produces just 25k or so cars/year.

And again, I'm just assuming about 10% of all passenger cars being long-range BEVs in that scenario, 90% of cars would still use older battery types or run on ICE, CNG, fuel cells etc.

You can call me a EV "naysayer", but in my opinion, it will take decades to solve the battery supply problem (unless a real breakthrough in battery tech comes along in 10-20 years...).

Somehow we have to make sure we can produce these 32 billion cells (or the equivalent in larger cells) efficiently and eco-friendly, including the raw material supply chain.

So in my opinion, the EV "revolution" will be harder and take longer than anticipated on a grand scale (again unless a battery tech breakthrough comes along...).

I know that continuing to use a lot of oil is also very problematic (hidden military costs/resource wars over oil, oil spills, shortages in conventional oil fields, problems with "fracking" and other unconventional oil...).

There is no easy solution.

I laid out my view for a more eco-friendly transport future here (it may not please car enthusiasts as it intends to plateau personal mobility at current levels: Open letter to the Haters - Page 4 ).


PS: If you don't agree with my numbers please let me know. More TSLA-specific battery supply numbers are in the "giga factory" thread.

 

[Causalien]

I don't dislike the technology in general. I don't think this is a black and white decision of EV vs ICE vs fuel cells, even skeptics think EVs may be better in some use cases. I laid out my view for a more eco-friendly transport future here (it may not please car enthusiasts: )

I joined this site to discuss why the stock was overvalued in my opinion (especially when it was close to $200 in September and warned of institutions reducing their positions vs retail investors). One has to separate the company from the stock price in my opinion, just because I think the stock price is too high doesn't mean I dislike (or even "hate") the company.

Finally, I wanted to stress the importance of battery supply issues facing TSLA and discuss the estimates/numbers.

I think battery manufacturing was under-reported and barely discussed compared to short-term challenges (fires etc.).

Without more giant battery factories being built worldwide, there will never be enough supply for 10% (or even above) of all new cars to be EVs.

Some simple numbers assuming long-range EVs take off slowly:

100 million new cars/year (assuming demand in Asia continues to grow, this is lkely, the present number is at 85 million new cars produced per year).

Let's assume 80 million of those passenger cars/year

Let's assume 10% of those long-range EVs with 4000 cells each (assuming TSLA's model of using small cells and Ah improvements/cell)

8 million cars x 4000 cells = 32 billion cells needed per year.

TSLA already (as of late 2013) is one of the largest buyers of Li-Ion cells worldwide and it currently produces just 25k or so cars/year.

And again, I'm just assuming about 10% of all passenger cars being long-range BEVs, 90% of cars would still use other battery types or run on ICE, CNG, fuel cells etc.

You can call me a "naysayer", but in my opinion, it will take decades to solve this supply problem (unless a real breakthrough in battery tech comes along in 10-20 years...).

Somehow we have to make sure we can produce these 32 billion cells (or the equivalent in larger cells) efficiently and eco-friendly.

PS: More TSLA-specific details in the giga factory thread.

So why do you join this forum to talk down the stock price? Aren't those discussion more for Seeking Alpha? Or yahoo finance since there, people are actually stock traders.

So you said your nays. What are the solutions to these nays? What I want to see, and what I think will be constructive is if you can come up with solutions to them instead of incessantly repeating the same boring points that I've probably been reading since the beginning of TSLA. Even if you are paid per post per reply, if you can say your nays and be constructive, I have no problems discussing with you.

 

[tftf]

So why do you join this forum to talk down the stock price? Aren't those discussion more for Seeking Alpha? Or yahoo finance since there, people are actually stock traders.

So you said your nays. What are the solutions to these nays?

If you think this forum or Seeking Alpha moves the price for TSLA more than a tiny bit, I think you overestimate its importance on the stock market (maybe penny stock pushers can move markets online for thinly traded stocks, but the daily volume in TSLA is above 10 million shares traded...).

Most professional analysts currently have price targets above $200 for TSLA. So I could argue this is a bull conspiracy to push up the price using your logic (I'm not)?

Analysts from well-known sell-side institutions changing their price or CNBC / Bloomberg showing another burning Model S video 10 times per day can move TSLA stock a lot more in my opinion. So can a new Elon Musk interview and other positive press coverage (CNBC was on the TSLA factory floor an entire day recently...).

As for mentioning the numbers (billions of cells) and challenges again and again, what is your answer?

Are my numbers or time estimates wrong?

If you think TSLA and other EV makers (together with battery suppliers or on their own) can soon build 32 billion cells quicker and cheaper than I anticipated, buy a lot of TSLA and battery manufacturers stock. I will be wrong and you will be rich

I'm just pointing out the supply bottlenecks compared to many analyst estimates: There is simply no way to sell so many EVs per year if there aren't enough batteries (i.e. new giant battery plants).

I have laid out some general solutions with a link (edited my post above), but there are no easy answers in my opinion.


PS: Finally, I take issue with comments like "Even if you are paid per post per reply". Do you think I am being paid by the oil industry or any other third party? Please read this link (which I also posted on SA a few times) to see my position on that:

The Ministry of Oil Defense It's not polite to say so, but if Americans understood just how many trillions their military was really spending on protecting oil, they wouldn't stand for it.

The U.S. Military Spends Trillions for Oil - By Peter Maass | Foreign Policy

But even if we all drive EVs one day, we will still need a lot of oil and other, finite resources...I just wanted to point out the huge supply challenges involved if EV demand takes off.

 

[GSP]

"So in my opinion, the EV "revolution" will be harder and take longer than anticipated on a grand scale (again unless a battery tech breakthrough comes along...)."

I think the problem here is unrealistic expectations. TFTF and others can anticipate something unrealistic, then be disappointed that a huge battery industry cannot be built in 5-10 years. It will take longer than that. Get over it.

GSP

 

[tftf]

I think the problem here is unrealistic expectations. TFTF and others can anticipate something unrealistic, then be disappointed that a huge battery industry cannot be built in 5-10 years. It will take longer than that. Get over it.
GSP

I think many unrealistic expectations are from bullish TSLA analysts and stock holders. They model in 500k+ in unit sales before the end of this decade without even factoring in the challenges on the battery supply side.

I will likely go long TSLA once again if it falls back to 50-65 USD. In that range, TSLA wouldn't need so many car sales and I could make the fundamental valuation work using my estimates and inputs.

PS: To re-assure longs: I also think the probability of TSLA falling that low again are small at the moment.

 

[anticitizen13.7]

PS: Finally, I take issue with comments like "Even if you are paid per post per reply". Do you think I am being paid by the oil industry or any other third party? Please read this link (which I also posted on SA a few times) to see my position on that:

The U.S. Military Spends Trillions for Oil - By Peter Maass | Foreign Policy

But even if we all drive EVs one day, we will still need a lot of oil and other, finite resources...I just wanted to point out the huge supply challenges involved if EV demand takes off.

I've pointed out in several threads that a shift in population trends towards more walking/biking-friendly communities could affect the automobile industry very negatively in the future. However, I think there will always be a need for some kind of motorized transport in industrialized nations, and Tesla is better positioned than other carmakers to provide the automobiles that people or communities will want.

 

[ModelS8794]

I think many unrealistic expectations are from bullish TSLA analysts and stock holders. They model in 500k+ in unit sales before the end of this decade without even factoring in the challenges on the battery supply side.

I will likely go long TSLA once again if it falls back to 50-65 USD. In that range, TSLA wouldn't need so many car sales and I could make the fundamental valuation work using my estimates and inputs.

PS: To re-assure longs: I also think the probability of TSLA falling that low again are small at the moment.

perhaps it it is unrealistic, but It's not just bullish TSLA analysts and stock holders making those estimates. Tesla themselves also model 700,000 unit sales in 2019.

 

[Krugerrand]

As for mentioning the numbers (billions of cells) and challenges again and again, what is your answer?

My answer is to let Elon Musk and Tesla do what Elon Musk and Tesla do, and not worry about it. I know, leap of faith, right? Not really. I've been following the progress of Tesla and SpaceX for a couple of years now. They know how to get stuff done and they've proven a number of times that they can get it done more cheaply than anyone ever realized. There's an undeniable track record.

I understand your need to break it all down into dollars and cents trying to understand how Tesla will do it. My educated guess based on watching Tesla and SpaceX unfold is that Elon Musk had most of the details already figured out in his head long before the first time he mentioned the giga factory several months ago. A man who can put together something like the Hyperloop will find the details of a giga factory child's play and something you do during a Sunday morning shower.

 

[tftf]

perhaps it it is unrealistic, but It's not just bullish TSLA analysts and stock holders making those estimates. Tesla themselves also model 700,000 unit sales in 2019.

I probably wasn't clear and should have formulated better: Assuming TSLA can get the funding in 2015, I do not question that TSLA could build this giant factory by 2017 and expand it in 2018+

My point was that bullish analysts do not properly factor in the huge costs involved (capital costs and new debt deal in place around 2015) to build this plant.

Estimating more traditional Gen III car-related cap ex for tooling etc. that would also be needed for a new ICE model is probably easier.

Assuming Straubels numbers of 3.5 billion cells in 2019 I estimate this is above 10 billion dollars of investments just for the battery part. I took smaller numbers for just 250-500k cars myself and arrived at 5 to 10 billion in total including the car.

- - - Updated - - -

I understand your need to break it all down into dollars and cents trying to understand how Tesla will do it. My educated guess based on watching Tesla and SpaceX unfold is that Elon Musk had most of the details already figured out in his head long before the first time he mentioned the giga factory several months ago.

There is of course a chance TSLA or a supplier came up with a substantial improvement over current battery technology, but even if that's the case I highly doubt it's ready to be mass-produced given the lead times (billions of cells needed by 2017 for Gen III, therefore plant construction has to start in 2015 according to my estimates).

With current battery technology (assuming around 10% improvements/cost reductions per year and looking at similar plants from Nissan-NEC and Panasonic, details in the giga factory thread) this plant investment will require a follow-on or taking on lots of debt in my estimates.

I'm not saying this is impossible, it will just take a lot of things to go right and on time - including favorable financial markets around 2015 (borrowing appetite from lenders and bullish institutional investors).

In summary, my worry is more on the financial side of things, not the technology side (although keeping up a very good quality control and raw material supply timing will be central).

 

[Krugerrand]

There is of course a chance TSLA or a supplier came up with a substantial improvement over current battery technology, but even if that's the case I highly doubt it's ready to be mass-produced given the lead times (billions of cells needed by 2017 for Gen III, therefore plant construction has to start in 2015 according to my estimates).

With current battery technology (assuming around 10% improvements/cost reductions per year and looking at similar plants from Nissan-NEC and Panasonic, details in the giga factory thread) this plant investment will require a follow-on or taking on lots of debt in my estimates.

Elon Musk has been talking about battery improvements all along. He knows what the improvements will be and when. Like I said, Sunday morning shower problem. It's solved in his head. All the rest is tedious, mind numbing stuff that just takes time to get in place.

 

[ABVA]

Elon Musk is not lying but I think he is clearly overestimating himself. And he is certainly no new Steve Jobs.

One example: Tesla’s supercharger model is just a complete waste of energy. Of course he is offering the power for free, so nobody actually realizes the massive charging losses. This is the only reason why the others are not turning to such a solution. The charging losses and the waste of energy are enormous! It is not a sustainable business model. Society will not accept a car with a carbon footprint worse than a Ford F150 forever. And this is the case if you are using these superchargers. Just make your own calculations on that.

The battery swap system is also utterly nonsense. Does he really want to bolt a high voltage battery pack on the chassis over and over again? It’s not a sustainable engineering solution. Not even close.
If you make an objective comparison between the Model S and a very standard saloon car, like an Audi A6 TDI the Tesla is completely outclassed. The Audi has double the range (<1000km), 40 kph higher topspeed, more comfort and safety features and cost 40.000 Euros less. And before you talk about acceleration, power is truly the last thing these big diesels need.

So in the End the Model S is just a big luxury item. Which is fine for some, but not for all.

You are contradicting yourself. What kind of LALA land you are in. Some if not all of Supercharging Stations derive Solar power, NO CARBON FOOTPRINT. Just curious, are you working for Wall Street, Oil Industry, or Auto Industry?

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Expectations are too high and the valuation is just massively overblown.

The Q2 number is not really important. The outlook is more relevant and there I see clear evidence that Tesla will not be able to sell close to 5000 cars a quarter.
Right now Tesla is selling cars at a pretty insane pace which is unlikely to be sustainable since the Model S is a very high priced car. In countries without TAX incentive the demand is close to zero. In Germany the current reservation number is still in the 3 single digits. I don’t believe the demand for the Model S will be higher than a 100 cars a month. In the Netherlands Tax incentives will run out by the end of this year, therefore demand will collapse in 2014. Apart from Norway, which is not in the EU, no other European country is planning a serious tax incentive on EV cars.

If you take a look at the time between ordering and delivery it has come down to 2-4 weeks. That tells me that Tesla is already not producing at maximum capacity and that demand in the US has already peaked. That is not really surprising since the Model S is very expensive (even with the Tax rebate) and it only applies to a limited audience as it’s range is very limited.

Tesla will have a hard time to make money at all within the next 24 months or even in the distant future. New stock and debt offerings are a safe bet.

Realist, you are ignoring reality, i.e. You are totally UNREALISTIC

 

[brianman]

PS: Finally, I take issue with comments like "Even if you are paid per post per reply". Do you think I am being paid by the oil industry or any other third party?

That's an interesting deflection but not a denial.

 

[anticitizen13.7]

That's an interesting deflection but not a denial.

Agreed. I'd like to hear directly from tftf whether or not they are being paid by another party to post here at TMC.

For the record, nobody pays me to post here, and I do so only for my own personal intellectual curiosity.

 

[tftf]

That's an interesting deflection but not a denial.

Rest assured nobody ever paid me to post anything here or on SA. I am fiercely independent, that's why I'm quite critical of most analysts, especially sell-side stock analysts (not just in TSLA's case).

TSLA interests me the same way AAPL does in the IT industry, its business model has effects on the entire sector. One of my areas of interest is disruptive technology, I'm interested to what extent and in which timeframe this is possible in the transportation industry.

So far, I think this is quite different than the IT industry. Taking AAPL as an example, the company managed to disrupt major industries (music, mobile phones, software distribution, newspapers...) in short time frames.

I think such revolutions possible in the IT or biotech industry are more difficult and slower to achieve in other industries.

One of the major reasons in the (EV) car industry is battery supply/manfacturing, especially in the quantities needed for the mass-market. (Continued in next post)

 

[tftf]

Elon Musk has been talking about battery improvements all along. He knows what the improvements will be and when. Like I said, Sunday morning shower problem. It's solved in his head. All the rest is tedious, mind numbing stuff that just takes time to get in place.

I don't think this will be a walk in the park. I think nobody argues TSLA can't make fine cars (as proven by reviews).

The key is battery supply and manufacturing capability.

We either get a battery research breakthrough one day (but this will also take time from lab to mass production) or we can only slowly move to around $150/kWh over time with current technology in my opinion.

McKinsey's estimates (to take one example) in comparison:

To inform the debate, we developed a detailed, bottom-up “should cost” model that estimates how automotive lithium-ion battery prices could evolve through 2025. Our analysis indicates that the price of a complete automotive lithium-ion battery pack could fall from $500 to $600 per kilowatt hour (kWh) today to about $200 per kWh by 2020 and to about $160 per kWh by 2025.1 In the United States, with gasoline prices at or above $3.50 a gallon, automakers that acquire batteries at prices below $250 per kWh could offer electrified vehicles competitively, on a total-cost-of-ownership basis, with vehicles powered by advanced internal-combustion engines (exhibit). 2

Battery technology charges ahead | McKinsey Company

McK' starting costs are probably too high (the 2012 figures), current costs already are lower.

But getting to around $150 per kWh will be hard to achieve.

I think the real "tipping point" for EV mass adoption could be around this figure, $150 per kWh (I didn't take $200 or above because new cars also compete with cheaper used cars in the market, not just other new cars. The ASP of new cars is around $30k in the U.S., similar in other countries).

The key to EV adoption lies in the hands of battery manufacturing improvements to be achieved by 2020 (let's say 5 years faster, more optimistic than McK with 2025).

Even if the path is clear, questions remain

- Will TSLA investors be that patient?
In IT or biotech, investors are accustomed to big quarterly market share shifts. With EVs and cars, they need to be a lot more patient. There could be many downs in between now and 2020, including a major correction in the stock market.

- Do they see the battery constraints?
Repeating myself here, but when you look at analyst estimates who write about 500k cars sold by 2018 but don't write a word about the battery plant TSLA has to build first, you have to wonder...

- Will TSLA still be at the forefront in 2020 or will the established car companies catch up in case battery prices fall to the promised levels?
Even with a first giant battery plant ready, TSLA can "only" produce around 500k or so cars per year. They would basically have to start building their second giant battery plant as they finish the first one (by the end of this decade).
If the market turns, big companies will invest heavily in their own battery plants in that timeframe...a glut and boom/bust cycle like in the early days of the solar industry could result in a price war.

 

[JRP3]

Why bother to reference a source that is so obviously out of touch with today's pricing? If anything correcting their numbers to reflect reality would suggest that the cost reductions are well within grasp.

 

[tftf]

Why bother to reference a source that is so obviously out of touch...

Yes, I fully agree with you regarding current pricing available to TSLA (and noted that above). I still used that study as a starting point because it's recent and from a well-known consultancy.

More importantly regarding future prices. When taking...

- battery raw material input prices (basically the "floor" for pricing)
- glut in 18650 manufacturing plants (existing, idle Panasonic plants restarted for TSLA)

(I know the second "idle" Panasonic plant argument is used by John Petersen at SA, which may be a red flag here, but I think this argument is valid)

...into account I think the progress (less $/kWh) will be much slower from now on towards the $150 "goal".

In my opinion, the $150 range is the "tipping point" for EV adoption in the mass-market.

This may be about 5+ years off (around 2020) in my rough estimates, maybe <$200/kWh will already start the shift in the mass market.

PS: Edit. I'm moving this part of the discussion to the cost per kWh thread where it probably fits in better.

 

[Krugerrand]

I don't think this will be a walk in the park.

Yes, I understand that is your position. I understood it several dozens posts ago. I don't agree and I've sited why: historical evidence.

On a comparative scale of giga factory vs private rocket ship company building the least expensive rocket of all time and sending it to the ISS and now just a short time away from the first ever truly reuseable rocket, or giga factory vs brand new car manufacturer and building an entirely never before seen car from the ground up and winning every award of merit, building out a new fueling infrastructure all over the world and offering the fuel for free, employing a never before seen car selling business model...

Giga factory is a walk in the park. Tedious perhaps, but not difficult.