General Discussion: 2018 Investor Roundtable

[dhrivnak]

As a statistical point, median income is not a useful metric to assess for demand of any expensive item. For cars in particular one needs to evaluate the several modes of income and wealth that are the likely buying universe.
Model 3 certainly will not be lower in demographics than is BMW 3-Series. In the US about 40% of BMW 3-Series are purchases made without borrowing (i.e. with clear title). The remainder are split about evenly between loans and leases. Given the mean FICO score in recent BMW securitizations it is probably reasonable to assume the average Model 3 buyer will have FICO of above 750, with almost none lower than 720. That suggests there are very few buyers with household incomes below $100,000 except for a few asset risk, income poor cash buyers.

As for % of income you'll see almost no Model 3 buyers whose income will be stretched by the purchase.

OK, I have no direct evidence, but I do strongly believe this is likely to be what happens.
Note: poor people rarely buy BEV's in any price point. For example Nissan Leaf buyers are the highest demographics of any Nissan-branded vehicles. (note: don't ask for the source of that data)

Then you will have a very small market size. Tesla is aiming for what 500,000 a year? BMW M3 sales are well under 100,000 units a year. 500,000 is more than Camry, Accord and Malibu the three largest selling mid-sized sedans. To crack that market in the volumes Tesla needs price is very important. Sure some people will stretch and some have plenty of money, but not 500,000/year.

 

[Reciprocity]

Don't know, but can speculate. The EV credit can only be claimed by the taxpayer (individual or corporate) that first titled the vehicle and only in that tax year--it does not carry forward. Tesla's accumulated deficit at 9/30/17 was $4.3 billion. Tesla has also stated that its deferred tax asset is already subject to a full valuation allowance, aka written off without the expectation that it will be beneficial. The corporate time limit for NOLs to carry forward is 20 years. Tesla was incorporated in 2003, so the early losses have about five years before they lapse.

The direct lease vehicles are first titled by Tesla Lease Financing LLC which is consolidated in Tesla's corporate return. As you have noted, there are multiple anecdotal accounts that TLF adds back the $7,500 EV credit to the vehicles' residual values to make the monthly lease payments competitive with 3rd party leases whose corporate lessors do have tax liabilities.

Even though Moody's discounted significantly the expected residual values of the vehicles indirectly transferred to the ABS trustee, the add-back was not discussed in the Pre-Sale. It's conceivable that some of the lower tranches in the waterfall may not receive the full expected return because of this practice

I think you answered my question. If there is a third party lease company that Tesla can line up to take on all these low dollar model 3's, then its a win/win for Tesla, the person doing the lease and the lease company, even the rates are a bit higher. I know that personally, I would never lease a Tesla, but even less so with the full credit available. But if for some reason I couldnt make use of the full credit, the lease was a nice option to fully leverage the credit because they would raise the residual value by $7500. I dont know how anecdotal it is, its what I was presented with on my of my cars.

Why is this good for the lease company? because they wont pay any taxes that year and they can charge higher rates. The advantage for the buyer is that they get a cheaper lease payment and are able to leverage a higher percentage of the full credit amount. The problem is that they would have to turn the car in because the higher residual would not be a good thing to buy out.

 

[RobStark]

Then you will have a very small market size. Tesla is aiming for what 500,000 a year? BMW M3 sales are well under 100,000 units a year. 500,000 is more than Camry, Accord and Malibu the three largest selling mid-sized sedans. To crack that market in the volumes Tesla needs price is very important. Sure some people will stretch and some have plenty of money, but not 500,000/year.

Tesla goal of 600k Model 3s per year is a GLOBAL goal.

400k plus Camrys and Accords per year is sales in the USA per year.

Newspapers et al also get confused between US and Global statistics/goals.

 

[kbM3]

[

I see it very simply, as I see all things:

Step 1) look at box 2 on your w-2 form.
Step 2) subtract your typical refund
Step 3) that is how much the tax credit saves you (or $7.5K, whichever is more)

Since I see that payment as coming out of my bank account where all my after tax dollars live, that tax credit is like getting a $10,000 bonus in salary.

Don’t forget that if tax liability is below $7.5 k and one has an IRA, they can convert to a Roth to up their liability to $7.5k.

 

[SteveG3]

Agreed. Then, I presume you agree that those who do not know that history have consideration to complain (as I did when I didn't know that history), but having known the history, look at it as a historical opportunity that worked in our favor.

since you asked, lols,

I don't see value in imagining anything to be 'unacceptable' or imagining any of us to have (or 'in the wrong for not having') some sort of 'seeing the matrix total view' of reality, so, that includes whatever events happened with Tesla, Elon, and Tesla's suppliers with the ramp, and whatever reactions any of us here may have experienced after learning some of the follow on events to those events.

 

[jbcarioca]

Then you will have a very small market size. Tesla is aiming for what 500,000 a year? BMW M3 sales are well under 100,000 units a year. 500,000 is more than Camry, Accord and Malibu the three largest selling mid-sized sedans. To crack that market in the volumes Tesla needs price is very important. Sure some people will stretch and some have plenty of money, but not 500,000/year.

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That is not what I meant to say at all. These discussions are all generalizations. In my opinion the creditworthiness and household financial capacity will be similar to BMW 3-Series, but the market potential size is a different question, I fully expect Model 3 will attract people who presently use a wide variety of vehicles. Model S and Model X have both attracted a very diverse owner group, but they hold in common excellent financial habits. Those habits are also held by many people regardless of vehicle choice. Please don’t confuse capacity with limitation of market potential.

My last point is that price competition is rarely as important as many people think. Just compare actual average selling price to base price on any vehicle and you’ll see that people almost always spend more than they would if they bought base cars. The question might well be this: how many new vehicles are sold in the US with ASP above $50,000. You’ll be surprised if you really think Model 3 is too expensive.

 

[BioSehnsucht]

Regarding the online polls showing many people willing to pay over 50k ... such polls are going to be self selective to people who are Tesla fans AND tech-savvy and so on, members of the various Tesla communities, etc, and are unlikely to be representative of the overall reservation pool. Plus, I doubt many of them have actually considered all the costs involved - looking at what the loan payments will be, higher insurance rates, sales taxes, etc... just because you know it's a factor doesn't mean you've sat down and done the math (to then be potentially dismayed at the results). And a lot of people might "just make it work" but be living on financial thin ice, which isn't good for anyone.

As for the kids credits ... There are a lot of us married filing jointly without kids. People have been waiting longer and longer to have children. We could use that EV credit. I really don't think we're in a particularly unique situation.

Although we have paid off both our ICE vehicles years ago, we have a mortgage that isn't cheap (though it was the spike in property values that surprised us after being here a while - we were totally comfortable with where we started), and housing values around here keep going up so we can expect our property taxes to keep going up too. An extra 500-600/mo in car payments (assuming 10k downpayment and very long loan period - much higher with lower downpayment or shorter loan) is not fun, and severely limits our ability to save money for future things (including kids, if we want to have them). And again, car insurance may go up sharply for many.

I don't personally know anyone who could just shrug off a 500/mo or more payment without caring, except for a few who can afford to buy with cash outright, but they're an exception (and more likely to shop for S/X).

Financially speaking, I'd rather buy a SR Model 3 w/ PUP and EAP, even with tax credit. With tax credit, I could possibly consider stretching to the LR Model 3 w/ PUP and EAP. However, with the possibility of missing the tax credit (line waiter but non-owner), I am forced into an uncomfortable position.

I can pay more than I want to get a car with tax credit sooner (though the tax credit does not make up the difference in LR vs SR, there are practical benefits to the LR over SR that have some value of their own), or pay less (but not as less as I could have if going the cheaper route with tax credit) without tax credit, and give up things I'd like.

If there wasn't a huge backlog I'd consider cancelling and waiting another year if we miss the credit window (and saving for another year to have a larger downpayment so that the loan payments are lower), but there's no guarantee I can just go and get the car when I want, I might be waiting longer than a year extra - and our existing ICE are nearing a decade old, and are likely to start having expensive repairs after another year or so, at which point perhaps we're actually not saving money by saving money.

 

[tander]

MarketWatch - 17 minutes ago: FCC chairman urges commission to approve Elon Musk's SpaceX application for broadband satellite

How might this affect Tesla?

Years ago I remember someone talking about Spacx providing basically real-time sat. images and super fast internet, so if you pair that with autopilot radar I imagine it would increase safety/functionality, although I don't know how it would help on cloudy days or nights. They could also use it to for inventory/supplier/competitor management. It might come in handy if they ever do flying cars too

 

[Mike Smith]

This Tesla bear believes the company will hit its Model 3 production target

CFRA analyst Efraim Levy raised his price target from $275 to $300 and says he thinks Tesla will make 5k/wk target.

 

[schonelucht]

I'm getting a bit concerned about the big lul in configuration invites. It's been 3 weeks since the last big batch.

I am not. Most likely scenario to me is that from the initial 3-4 batches quite a few did not yet configure because they wanted to get some more information on the car. As more reviews are available and some showrooms now carry the 3 I suspect a constant trickle of that reservoir is now finally configuring.

 

[Reciprocity]

[



Don’t forget that if tax liability is below $7.5 k and one has an IRA, they can convert to a Roth to up their liability to $7.5k.

Yup.. free conversion for certain sized accounts. You can just convert what you need to maximize the credits. Good catch. I did the same last year because of the Solar + EV credit.

 

[Reciprocity]

hrm.. 25 cents a gallon gas and diesel tax from Trump? Are you sure he is a Republican and hates Tesla?

 

[Lessmog]

hrm.. 25 cents a gallon gas and diesel tax from Trump? Are you sure he is a Republican and hates Tesla?

Honestly, I think he is neither, but in desperate need of distractions at this time.
All the pols I give for now.

 

[ValueAnalyst]

hrm.. 25 cents a gallon gas and diesel tax from Trump? Are you sure he is a Republican and hates Tesla?

Don't know what he's thinking, but I know this: $0.25/g increases the relative value of owning a Tesla by ~$125 per year.

I also expect gasoline prices to rise ~$1/g this year, driven by higher Brent crude oil prices, and that helps Tesla TCO by ~$500 per year.

 

[hobbes]

I am not. Most likely scenario to me is that from the initial 3-4 batches quite a few did not yet configure because they wanted to get some more information on the car. As more reviews are available and some showrooms now carry the 3 I suspect a constant trickle of that reservoir is now finally configuring.

Might be, but there were 1262 VIN registrations almost two weeks ago and no more after that - this info might not have enough granularity, but to me it looks as if they have slowed down on output. My guess: as long as the battery module assembly is a bottle neck, they could slow down other parts of production to make modifications there and still catch up later. That might make sense as they are expecting a step change once the new battery module production line from Grohman comes in, at that point the bottleneck would be moved somewhere else and they could now be removing those likely bottlenecks ahead of time.

 

[Mike Smith]

A weird thing I've noticed from analysts is that they completely strip out ZEV credits in the quarters Tesla receives them, yet they say nothing about them in the quarters they don't receive them. They treat them as if they're a one-time item when they obviously aren't. This is a clear example of anti-Tesla bias among analysts.

 

[Reciprocity]

Don't know what he's thinking, but I know this: $0.25/g increases the relative value of owning a Tesla by ~$125 per year.

I also expect gasoline prices to rise ~$1/g this year, driven by higher Brent crude oil prices, and that helps Tesla TCO by ~$500 per year.

Hrm semi? At 7mpg x 120,000 miles per year.. math is hard. It's going to be expensive.

Edit: $4200ish a year for a diesel semi. $42,000+ over 10 years.

 

[Zaxxon]

Bunch of new Model 3 config invites went out this afternoon, all owners (that I've seen thus far) but including at least one owner who reserved this month. Could this be the last batch before non-owners start getting invited?

 

[Reciprocity]

Another round of invites went out. This seems like the last batch of owners as I'm hearing it includes owners like me with 2017 reservations getting invited. My second was and June/July and I just got my second invite. Don't hate in me, I'm waiting on both so I'm not TM3 blocking anyone.

Edit: @Zaxxon beat me to it. Why does that make seen familiar... Was that a video game machine from the 80s or the bad guy in defender. Can't quite place it.

 

[22522]

That is not what I meant to say at all. These discussions are all generalizations. In my opinion the creditworthiness and household financial capacity will be similar to BMW 3-Series, but the market potential size is a different question, I fully expect Model 3 will attract people who presently use a wide variety of vehicles. Model S and Model X have both attracted a very diverse owner group, but they hold in common excellent financial habits. Those habits are also held by many people regardless of vehicle choice. Please don’t confuse capacity with limitation of market potential.

My last point is that price competition is rarely as important as many people think. Just compare actual average selling price to base price on any vehicle and you’ll see that people almost always spend more than they would if they bought base cars. The question might well be this: how many new vehicles are sold in the US with ASP above $50,000. You’ll be surprised if you really think Model 3 is too expensive.

I don't think Tesla knows. The employee window is a good way to find out.