General Discussion: 2018 Investor Roundtable

[smak]

Had you bothered to read the paragraph you snipped, you would have seen their arguments : the language in the press release is crafted to make it look like they are at 1000/week (and many here are preaching the gospel), but it doesn't actually say so. I think there is no denying of this and there is no denying that such communication style breeds distrust. And yes, you should care about what someone feels. At least in so far that you'd like to do your stock well. Share price is a function of sell and buy actions of every single actor in the market.

The language isn't crafted at all. The last couple of days they hit a number that would extrapolate to 1k/wk. We all should know what that means, especially in the middle of a ramp up.

 

[dc_h]

I see that mmd has been released from their 1 month moderator-imposed hiatus for bad behavior.

mmd has stated that in the past that they are ignoring me (haha!), but their post does merit some discussion with regards to trends in the broader automotive market.



The first thing to note is that mid-size sedans as a segment are declining as a percentage of the overall car market. While Camry and Accord sales remain stable, many other models of mid-size sedans are falling by the wayside. You can read about this decline in an extensive series by The Truth About Cars: midsize sedan death watch Archives - The Truth About Cars

So what are people using to cart their familes to Disneyland? Compact Crossovers and other large, hatched vehicles.

Lets look at Honda' s December 2017 and full year 2017 results: American Honda Sets 3rd Straight Annual Sales Record with Best-Ever December for Trucks

Model: Dec '17; Total 2017
Honda Accord: 22,115; 322,665
Honda Civic: 31,406; 377,286

Honda Pilot: 18,602; 127,297
Honda CR-V: 36,983; 377,895
Honda HR-V: 7,543; 94,043

Honda Odyssey: 9,874; 100,307


Honda has other models, but these are the most relevant to the discussion.

The first thing to note is that the Honda CR-V, classified as as Compact Crossover, now handily outsells the Accord, and has reached parity with the Civic. The Honda CR-V is a hardware platform relative of the Civic, and both cars have similar ground dimensional footprints. Compact Crossovers are replacing Midsize Sedans.

Many younger people start their adult lives with sedans like the Honda Civic, but they often no longer move up to a bigger sedan like Accord when they start to raise families. They are trading in their Civic/Focus/Jetta/Corolla/Impreza for some form of Compact Crossover, like CR-V or Subaru Forester when looking for a road trip car. I've observed that families will often keep 1 sedan for a commuting spouse, and keep 1 crossover for road tripping. Crossovers generally have better rear bench seating positions and space than sedans, and are much easier for bulky items like strollers, suitcases, and sports gear due to the wide opening and space of their rear hatches. The higher seating position is a plus too.

The second thing to note is that the sales of hatched vehicles (Pilot, CR-V, HR-V, and Odyssey) now at least equals the sales of Civic plus Accord. Hatched vehicles likely exceed sedans now, because the Civic is available in hatchback form, and the Fit tilts the balance further.

Sedans have become the new Coupe. Many people buy them for the sexier shape and low-to-ground mass, which generally translates to better cornering. In terms of higher end cars, people buy a sedan because they desire it, not because it is the most practical option. At the low end, people still buy sedans because of lower cost. At the middle, the fact that midsizer sedans have higher cost and lower utility than CUVs means that they get squeezed out.

What does this mean for Model 3?

(1) Back seat comfort for Adults and Teenage children over multi-hundred mile trips is largely irrelevant. People in today's marketplace who need this are looking at a Compact Crossover, not a Sport Sedan. All Model 3 really need to do with regards to larger rear seat occupants is give them enough leg room and comfort for 30 minute hops.

(2) For younger families small children, the back seat should be fine for car seats: http://www.motortrend.com/news/tesla-model-3-family-car/

What really matters for Tesla in the long run for family cars, is Model Y, the Compact Crossover relative of Model 3.

• Model Y gives Model 3 owners an "upgrade" path. People in the Model 3 demographic may prefer the Y over the X for size and/or cost reasons.
• Model Y gives non-Tesla owners a compelling option if they want a CUV but don't want something as big or expensive as Model X.

I don't know how tall MT editor Kim Reynolds is (the guy pictured), but elevated leg position is common in a car the size of Model 3. The Honda Civic sedan is 182.8" long, compared with 184.8" for the Tesla Model 3. Both cars have roughly the same cabin and trunk volume.

See Honda Civic rear seat example: Roomy Interior Means I Can Sit Behind Myself - 2016 Honda Civic Long-Term Road Test

Anyone tall, spending hours sitting in a car that is Civic or Model 3-sized, is going to suffer "road butt".

There have been a few 6’5” and at least one 6’7” reviews of the back seat and been positive. I think the room is better than A4 and probably Camry. I checked an employee 3 on the lot here in Chicago area and it was better than my car and any mid size I’ve seen.

 

[anticitizen13.7]

There have been a few 6’5” and at least one 6’7” reviews of the back seat and been positive. I think the room is better than A4 and probably Camry. I checked an employee 3 on the lot here in Chicago area and it was better than my car and any mid size I’ve seen.

The issue some people have raised with Model 3 is that the seat cushion is not raised enough off the floor, with the result being insufficient thigh support and pressure on the passenger’s rear where taller people are concerned. Legroom can be good by seating angle not so good.

This was a common complaint for Hondas in the past, and I specifically remember this being one of the few complaints about the ‘03-‘07 Honda Accord interior.

 

[mongo]

The issue some people have raised with Model 3 is that the seat cushion is not raised enough off the floor, with the result being insufficient thigh support and pressure on the passenger’s rear where taller people are concerned. Legroom can be good by seating angle not so good.

This was a common complaint for Hondas in the past, and I specifically remember this being one of the few complaints about the ‘03-‘07 Honda Accord interior.

+1 hate sitting on tailbone.

 

[CaliBear1]

Really interesting analysis. In light of it, why do you think Elon and Tesla decided to build the 3 before the Y?

I see that mmd has been released from their 1 month moderator-imposed hiatus for bad behavior.

mmd has stated that in the past that they are ignoring me (haha!), but their post does merit some discussion with regards to trends in the broader automotive market.



The first thing to note is that mid-size sedans as a segment are declining as a percentage of the overall car market. While Camry and Accord sales remain stable, many other models of mid-size sedans are falling by the wayside. You can read about this decline in an extensive series by The Truth About Cars: midsize sedan death watch Archives - The Truth About Cars

So what are people using to cart their familes to Disneyland? Compact Crossovers and other large, hatched vehicles.

Lets look at Honda' s December 2017 and full year 2017 results: American Honda Sets 3rd Straight Annual Sales Record with Best-Ever December for Trucks

Model: Dec '17; Total 2017
Honda Accord: 22,115; 322,665
Honda Civic: 31,406; 377,286

Honda Pilot: 18,602; 127,297
Honda CR-V: 36,983; 377,895
Honda HR-V: 7,543; 94,043

Honda Odyssey: 9,874; 100,307


Honda has other models, but these are the most relevant to the discussion.

The first thing to note is that the Honda CR-V, classified as as Compact Crossover, now handily outsells the Accord, and has reached parity with the Civic. The Honda CR-V is a hardware platform relative of the Civic, and both cars have similar ground dimensional footprints. Compact Crossovers are replacing Midsize Sedans.

Many younger people start their adult lives with sedans like the Honda Civic, but they often no longer move up to a bigger sedan like Accord when they start to raise families. They are trading in their Civic/Focus/Jetta/Corolla/Impreza for some form of Compact Crossover, like CR-V or Subaru Forester when looking for a road trip car. I've observed that families will often keep 1 sedan for a commuting spouse, and keep 1 crossover for road tripping. Crossovers generally have better rear bench seating positions and space than sedans, and are much easier for bulky items like strollers, suitcases, and sports gear due to the wide opening and space of their rear hatches. The higher seating position is a plus too.

The second thing to note is that the sales of hatched vehicles (Pilot, CR-V, HR-V, and Odyssey) now at least equals the sales of Civic plus Accord. Hatched vehicles likely exceed sedans now, because the Civic is available in hatchback form, and the Fit tilts the balance further.

Sedans have become the new Coupe. Many people buy them for the sexier shape and low-to-ground mass, which generally translates to better cornering. In terms of higher end cars, people buy a sedan because they desire it, not because it is the most practical option. At the low end, people still buy sedans because of lower cost. At the middle, the fact that midsizer sedans have higher cost and lower utility than CUVs means that they get squeezed out.

What does this mean for Model 3?

(1) Back seat comfort for Adults and Teenage children over multi-hundred mile trips is largely irrelevant. People in today's marketplace who need this are looking at a Compact Crossover, not a Sport Sedan. All Model 3 really need to do with regards to larger rear seat occupants is give them enough leg room and comfort for 30 minute hops.

(2) For younger families small children, the back seat should be fine for car seats: http://www.motortrend.com/news/tesla-model-3-family-car/

What really matters for Tesla in the long run for family cars, is Model Y, the Compact Crossover relative of Model 3.

• Model Y gives Model 3 owners an "upgrade" path. People in the Model 3 demographic may prefer the Y over the X for size and/or cost reasons.
• Model Y gives non-Tesla owners a compelling option if they want a CUV but don't want something as big or expensive as Model X.

I don't know how tall MT editor Kim Reynolds is (the guy pictured), but elevated leg position is common in a car the size of Model 3. The Honda Civic sedan is 182.8" long, compared with 184.8" for the Tesla Model 3. Both cars have roughly the same cabin and trunk volume.

See Honda Civic rear seat example: Roomy Interior Means I Can Sit Behind Myself - 2016 Honda Civic Long-Term Road Test

Anyone tall, spending hours sitting in a car that is Civic or Model 3-sized, is going to suffer "road butt".

 

[Esme Es Mejor]

Really interesting analysis. In light of it, why do you think Elon and Tesla decided to build the 3 before the Y?

Same reason he crashed an uninsured McLaren. And is sending a Roadster to Mars.

 

[Cosmacelf]

I've been meaning to do this for a while. I wondered what Tesla's stock price was like compared to the same time period since IPO for two other high flyers, Amazon and Google. I grabbed historical data for all three stocks and started the chart from IPO at the same time for all three companies using split adjusted prices (ie. all prices are pre-split for Amazon and Google, Tesla hasn't had any splits). The first chart, ending the series at current day for Tesla. The horizontal axis is years since IPO.

The dip in Amazon stock reflected the dot com crash in 2001 (Amazon went public in 1997, Google in 2004, Tesla in 2010). And Google had a first day open at around $98 if I remember correctly. Interesting chart, but doesn't really show what can happen, so I extended the chart for all of Amazon's history as a public company:

Going further in time, both Google and Amazon have nice rises and then Amazon is now hyperbolic

Don't read TOO much into these charts since Google, Amazon and Tesla are quite different companies. Nonetheless, if you believe Elon's visions are achievable, watch out!

 

[anticitizen13.7]

Really interesting analysis. In light of it, why do you think Elon and Tesla decided to build the 3 before the Y?

I think there are several possible explanations:

1) Elon and Tesla did not anticipate the rapid shift of customer preferences from midsize sedans to compact crossovers.

2) Elon and Tesla wanted to generate the greatest amount of enthusiasm and attention for their Generation 3 platform. Compact Crossovers sell in large numbers, but few if any people would describe a Honda CR-V or Subaru Forester as a car that is sexy or a product that evokes desire. A sleek and attractive Sport Sedan, on the other hand, gets attention. If I told people: "we are taking on Honda CR-V", that would likely be met with "ok". If I told people: "we are taking on BMW 3-series", that would be met with "sign me up!" (which is exactly what happened with reservations).

3) A Compact Crossover is mechanically more complicated than a Sedan, because having AWD as an option is pretty much necessary right out of the gate. Starting with a RWD Sedan is an easier path for engineering and manufacturing.

I suspect that a combination of 2 and 3 is the most likely reason, but I have no firsthand knowledge of Tesla's product development process.

 

[Cosmacelf]

Really interesting analysis. In light of it, why do you think Elon and Tesla decided to build the 3 before the Y?

Mostly because a sedan is cheaper to make than a crossover. Tesla had a price point in mind and a crossover would have blown the budget. Fast forward another couple of years and maybe Tesla can make the Y at the same price as the Model 3 is today assuming battery prices keep falling.

Also, I suspect Tesla doesn't do a lot of traditional market analysis. Every company has its blind spots. Elon will make his engineers bleed to squeeze out an extra joule of efficiency out of the car, yet we haven't seen much evidence of market research other than Elon's gut and back of napkin level calculations.

 

[RobStark]

Elon will make his engineers bleed to squeeze out an extra joule of efficiency out of the car, yet we haven't seen much evidence of market research other than Elon's gut and back of napkin level calculations.

I read a story about how Elon picked the final design of the Roadster.

He had a party and had several versions of the Roadster on a wall.

He gave each person at the party a post it note with their name on it and asked them to pick their favorite by posting the note on their favored version.

Didn't pay a Madison Ave Consultancy $$$.

 

[mmd]

Alex Roy published his review.

Tesla Model 3: The First Serious Review

TL;DR - loves the car except for AP interface

And.... it's up for sale! Dan Zorilla doesn't like the car enough to keep it. Trying to make a few quick bucks
2017 Tesla Model 3 - Long Range - Premium Upgrade Package | eBay

 

[neroden]

Leaks on comment sections of various articles suggest that the automated battery pack "bandolier" assembly is now *working* (faster than manual operation) but still has a lot of bugs and failures. So this seems to still be the critical bottleneck. This is not the most complicated problem in the world so I'm quite sure they'll get it right eventually (it ain't full self-driving on country roads).

I assume, again, that they're simultaneously working to eliminate "the next bottleneck" along the line. This would account for the lone report of a one-day 500-a-day production run at Fremont -- something like that would have been a test run to spot what the other bottlenecks were. Following the identification of such problems, they'd slow back down to match battery pack production. But it seems that for quite a while the "bandolier" assembly will be the main bottleneck. When that is cleared out, expect a step-change in production. When will that really stop being the limiting factory? Who knows, maybe early 2019.

 

[neroden]

I think they are conservative, otherwise, statments like this wouldn't make sense
Tesla Model 3 production is increasing to 5,000 units per week, say suppliers

I believe it's a Gantt chart thing. The current critical path is probably still in "bandolier" assembly. If that path is fixed, there will be a step-change jump in production and they do *not* want anything else to fall behind.

 

[neroden]

so they're supposed to deliver a semi in 2019... where's the money for the factory buildout going to come from?

Myusername, there are leaks indicating that they *already have the factory location* for the semi, in Livermore. That was a bit of a surprise to me. They've been getting startlingly good at keeping things under wraps.

The battery packs and motors are shared with model 3 and apparently now manufactured in Sparks. So this basically leaves a body and final assembly line to build. (Edit: and a paint shop? What will they do about a paint shop? Suppose they could just prime the trucks and tell the customers to paint them, given the semi market) Given the *much* lower volumes of production for semis, and the customer taste for customization, this is probably going to be a more conventional line than the Model 3 line, with lower upfront capex.

I think a lot of "analysts" haven't realized how much of the *past* Tesla R&D spending was preemptive spending on distant-future products. This is causing misestimation of future R&D spending rates. Something similar is going on regarding capex and SG&A...

 

[neroden]

thanks for the link... I believe so. I do not think Tesla is going to scale out in any way that resembles what has been envisioned for the next 2 to 4 years... and I believe either VW, GM, Audi or Toyota will pull a rabbit out of their hats.

Fair enough, myusername. Appreciate the clear statement of your investment thesis. But you're wrong.

Tesla will scale up in approximately the way envisioned within the next 2 to 4 years (always later than Musk's target dates, but they get there). And neither GM, VW, Audi, nor Toyota will pull a rabbit out of their hats. (Geely or BYD might do so -- their hats seem a lot more magical. .) That's my assessment based on studying both Tesla and their competitors for years.

This might only mean that Tesla stock doubles, while GM/VW/Toyota stock languishes (remember, I believe their stock has depressed multiples due to problems with their market situation). Fine with me, I'm not an ultrabull.

 

[neroden]

Model 3 quality: I've been following YouYouXue's road trip on Facebook. He has encountered several issues with the Model 3. Tesla has been very responsive to them, but it disappointed me to see how many issues he has encountered. If you want to read through his posts: Tesla Model 3 Road Trip

I went through it. Here's my summary:
-- very minor hardware issues, fixed quickly
-- significantly more serious software issues, not fixed, but tolerable
-- really bad communications. Awful communications is, IMO, Tesla Inc.'s key weak point. To quote YouYouXue:

I believe that Tesla as a company needs to improve the consistency of its customer service. This includes taking advantage of CRM resources and making sure every customer feels respected and gets the attention they deserve. This also includes improving communication. I know that many of my calls and emails went unanswered for days, and my Model 3 configuration to delivery experience was frustrating. Certain features that have been implemented to listen to the customer voice are total BS...

 

[neroden]

If I remember correctly, they had been running 3 shifts using overtime on the S&X lines but are back to 2, yet are 30% over last year, right? Can S&X production be increased another 30% this year by adding a dedicated 3rd shift production?

Yes, but with (a) current countries in which Tesla is selling and (b) current pricing, it appears that Model S has hit a plateau of sales. Model X may hit such a plateau soon as well. There isn't an unlimited supply of people who have $80,000 to spend!

Increasing production on Model S and X will probably only make sense once Tesla can cut enough costs out of the production line to cut the sticker price a bit. (Moving into additional countries has high overhead costs and won't make sense until Model 3 is producing more units.)

Edit: or, as some suggest, greater brand awareness may drive demand up and make it make sense to add that extra shift. That would be nice. Who knows.

 

[neroden]

So really, Tesla is a full 24 months late on their original original schedule for the model 3.

Yeah, but that's roughly equal to the two-year delay in acquiring the Model S factory. Which I think honestly delayed every single thing the company did (they weren't very parallelized back then).

 

[neroden]

I'd submit to those who have posted opinions that once the original production line for cells, battery pack or cars, is fine tuned and working to design capacity, setting up subsequent identical lines should be straightforward and much less time than the first. I thought going from 5,000/wk to 10K/wk was going to happen by building a 2nd production line (or set of sub lines). The design and elements of the second M3 line are known by now and much work could/should have commenced. So if 5K/wk is reached by end of Q2 and assuming (validly IMO) quite a lot of the Line 2 is already in place before that milestone, why can't the second line be brought up to full speed by end of Q4?

I agree with the basic layout of this analysis. I think they'll still have trouble hitting 5000/week by the end of Q2 (*some* subassembly line will simply not be able to keep up and will have to be redesigned/duplicated), but by then they'll have a good sense of the bottleneck. After they've finished debugging that first line, getting the "exact duplicate line" going at 4000/week should be a fast action taking 3-6 months maximum.

This is only a rhetorical question. My point is that some have based very optimistic production, valuation, revenue and profit projections years into the future, on the premise that building follow on production lines very quickly can be taken for granted.

I've made this assumption myself though my models aren't that optimistic

 

[neroden]

On the question to the 7 cent / kWh being realistic for the Semi :

EGEB: Solar doesnt need a breakthrough, $7.5B solar equipment ordered in 2017, more

Bids on Solar+storage at 3.6¢/kWh. These are US bids !
And of course these are todays prices versus 2019/2020, with the trend to lower costs.

Tesla then sells at 7 cent, that is already promissing a 50% margin (even if Tesla would outsource, but on top of that Tesla produces the solar and storage at GF1 and GF2).

Remember to factor in more battery costs. Most of those solar+storage quotes have relatively low storage/solar ratios. Tesla will need higher storage capacity for the "burst releases" of energy to charge the cars.

It'll still be profitable though.