General Discussion: 2018 Investor Roundtable

[neroden]

Something new (to me), apologies if others have already covered this, regarding the tax reform and how it impacts Tesla's cumulative NOL's deferred tax value.

Trump Tax reform to generate additional loses on Tesla, Deutsche Bank is one of the first victims • r/teslamotors

OK, so there are three effects on Tesla related to NOLs of the Republican tax scam law:
(1) NOLs are only deductible against 80% of operating profits. OK, so they get used up slower. Whatever; that's a timing issue.
(2) Tax rates for corporations dropped, reducing the nominal future value of NOLs. Whatever -- the savings on lower tax rates are more significant than that.
(3) NOLs don't expire. This is actually very important for Tesla. They used to expire after 10 years. Tesla was founded in 2003 and some of their NOLs have already expired. The NOLs from 2008 were scheduled to expire but now they last forever. This ends up amounting to a meaningful reduction in taxes down the road.

 

[neroden]

We keep thinking that more people want $35k model or duel motor/performance. My guess is that just as many people dont want black interior. I am actually shocked that I like the white interior, im not a white interior guy. But for some reason I just have to have a stormtrooper white on white with black wheels and carbon fiber accents. I also want the duel motor, but the interior options are almost as important.

My hard requirements are white interior and AWD. I'm not even bothering to look at the configuration invitations until both are available.

 

[ggr]

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.

This is a weirdly ambiguous response... sorry. Re: (a), they can open new countries, if they want and have production capacity. Brazil, for example, or move more solidly into eastern Europe eg. Poland. I don't think it's as hard as you seem to think. (b) I think they are still production limited, and as the 3 penetrates markets they will find more people prepared to pay the extra money for S/X in existing markets.

On the other hand, one doesn't have to satisfy the demand, and it may make more logistical sense to simply not expand the S/X production. And when the goal is to improve the planet, and not to optimize money, maybe that is the right answer.

 

[neroden]

This is a weirdly ambiguous response... sorry. Re: (a), they can open new countries, if they want and have production capacity. Brazil, for example, or move more solidly into eastern Europe eg. Poland. I don't think it's as hard as you seem to think.

Oh, it's not *hard*. It's straightforward. The problem is that it increases the ongoing, yearly service center costs -- SG&A goes up. You want to be selling enough cars to generate enough operating cash flow that that's a drop in the bucket, and it isn't yet. When they're mass-producing Model 3, it'll make a lot more sense.

(b) I think they are still production limited, and as the 3 penetrates markets they will find more people prepared to pay the extra money for S/X in existing markets.

I hope you're right. :shrug: I think there is evidence that they've just about hit demand limitation for the S at current prices, current markets, with current awareness levels (the inventory VINs runs last year were the clue). That said, they can reduce prices, increase markets, or have more awareness.

 

[sundaymorning]

Nonetheless, if you believe Elon's visions are achievable, watch out!

I believe it’s only a matter of time before Elon’s mission is achieved. As I observe the playing field, the pool of brilliant CEOs measuring to Elon’s towering brilliance is quite tiny. Right now I just don’t see any company capable of catching up to Tesla, not even close. Tesla/Space X are innovating at a speed unlike anything I’ve ever seen. I keep reading posts about potential Tesla killers coming around the corner within 5 years. Let’s get real, in 5 years Tesla will be a Goliath to fight against, it won’t even be close.

Thanks for the post, it was a fun read.

 

[dc_h]

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.

The A4 and M3 are the best performance design cars out there. If Tesla’s mission is to be the best car, this is where to strike. The model S and X have stoke at the heart of their respective luxury markets. If the 3 does the same, they will have trouble building to demand for years to come.

 

[Reciprocity]

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:

And the volumes are very low at this point for model 3, so the communication issue will only be magnified if it's not nipped in the bud.

In terms of software issues. I'm wondering if they basically started over with the model 3 and cheated a frame work for all future interfaces. Almost like going from HTML to responsive design and CSS on the web. Not to say they are switching to CSS, just that the UI could adapt to different screen sizes and orientations going forward. Either way, since all the hardware is new when compared to S/X, they would almost need to start fresh with only a small percent shared with S/X. This obviously makes managing that Dev going forward more burdensome. Atleast until they refresh S/X and use a lot of the model 3 improvements. Maybe sooner then we think?

 

[Reciprocity]

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.

I don't agree. I think the issue is that tells cannot build enough model S or X. Supply is what is flattening, not demand. And model 3 will have the opposite impact of Osborneing, driving demand and awareness. I'll point out a few reasons for my thoughts on this..

1) you will know if demand is an issue when free Supercharging for S/Xc comes back. It's a demand lever. My guess is when fed tax credits go away.
2) there is a natural product cycle and Tesla has not entered a new cycle yet. The cycle is complete when the bulk of S sales are coming off leases or upgrading and when competitors cars are doing the same after a point at which Tesla became viable in the minds of consumers. This is important to understand the dynamic. If I'm an S class guy, but I just leased a new S class in 2015, then learned about model S in 2016 from a friend, I'm not in the market until this year or maybe 2 years depending on my purchasing habits. Same goes for model S customers where first time buyers may have peaked last year so there are a couple more years of incremental growth from return customers.
3) production delays will actually drive model S demand. Already has, will continue.
4) when model 3 hits the road in mass it's going to be like a massive ad campaign. This car has been so hyped that everyone who buys one will give about 1334 test drives to friends, family, and colleges. That is about a billion miles of test drives. Autopilot is going to become self aware and take over the world.
5) you alluded to it, but there are still many markets Tesla is new or not in at all. China can double before it hits parody with US and it's a bigger overall car market. Places like Spain showing massive growth though getting small numbers. Germany even showing growth. S Korea and Japan is basically virgin territory. Model X can double I'm the US easily, but they can't build enough.

I have about a dozen more but typing on a cellphone is prone to bad typeos. It will be interesting to see what they do as tax credits phase out. My biggest concern is production, not demand. That's why I doubt we see 2170 and refresh until the beginning of 2019.

 

[kbM3]

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.

They added the qualifier “on each of our production lines”. If they had hit a 1k/wk rate, I think they would have simply stated that.

 

[bdy0627]

Yes, 5,000 cars/week beyond Q2 is likely.
The key of M3 ramp-up is still "the" bottleneck - M3 battery pack production. The M3 production is constrained by the number of battery packs produced. Tesla is not out of the woods yet. The newly automated line is producing low number of battery packs.
My guess is that Tesla doesn't know how much time required to take the battery pack production to 5k/wk. But the odds before 1Q18 are pretty bad, so the target date is just pushed out for another quarter.
The bright side is that Tesla will bring the production well over 5k/wk eventually. It's either the production line is fixed to reach the planned capacity, or more duplicated production lines will be set up (if Tesla realize that it doesn't have any straight solutions to reach the 5k/wk capacity per lline.) The silver lining is that the battery production won't drag down future ramp-up of semi, MY and truck as they will most likely share the same battery modules with M3.

I sure wish they wouldn't state they are highly confident about achieving something when they in fact don't know. I don't know how else to interpret their projections in early November when they pushed the 5,000/wk rate back 3 months. They were very clear about how confident they were of hitting 5,000/wk by end of Q1 2018, possibly sooner. They were fully aware of, and working hard on, the pack production bottleneck at that point. What changed between then and early January? Apparently, they just became aware that their confidence regarding their production projections was totally incorrect. So, it seems obvious in hindsight that, even though they projected production numbers with very high confidence just a few months out, they in fact were just guessing with a lot of uncertainty still present.

 

[mongo]

They added the qualifier “on each of our production lines”. If they had hit a 1k/wk rate, I think they would have simply stated that.

I'd say that is a useful qualifier in that it widens the statement to all possible lines. If they had simply said "we hit 1k/wk", the comments would then be:
"On which line?" (Fremont, Gigafactory, BIW, drive units)
Which is a valid question since the Q3 letter broke out different sets of lines going at different rates (500, 1000, and mostly broken)

 

[kbM3]

I'd say that is a useful qualifier in that it widens the statement to all possible lines. If they had simply said "we hit 1k/wk", the comments would then be:
"On which line?" (Fremont, Gigafactory, BIW, drive units)
Which is a valid question since the Q3 letter broke out different sets of lines going at different rates (500, 1000, and mostly broken)

I’m confused. When they hit a rate, let’s say 5000/ wk, doesn’t that necessarily mean all lines are running at that rate at the same time?

To me, when they state on each line, it could mean a given line ran at that rate, but not at the same time as other lines.

Is the part I’m missing, buffering capability between the lines?

 

[mongo]

I’m confused. When they hit a rate, let’s say 5000/ wk, doesn’t that necessarily mean all lines are running at that rate at the same time?

To me, when they state on each line, it could mean a given line ran at that rate, but not at the same time as other lines.

Is the part I’m missing, buffering capability between the lines?

Yeah, buffering allows asynchronicity.

My belief is that the main vehicle line has minimal buffering, so to hit the rate there means end to end operation.
Doors are painted with body, then removed for sub assembly, so those need to be built at same/ faster rate as main line.
Drive units, packs, dash units, are all off line sub assemblies that can be buffered (packs and DU come from Sparks).
So for 1k/wk on a 5k/wk (ultimate) capacity system, they could run drive units and packs at a 1k rate, ship to Fremont. Then run main line at 1k rate with buffered dash, seats and such.

The buffering is a guess. At the 5k rate, I'd expect thing to run with minimal in line buffering, and the sub process to run lock step with main manufacturing. Unless the sub process is fast enough to produce two shifts worth of vehicle parts in one shift (and requires many people).

To handle sub assembly rate fluctuations, they can have a buffer of sub assemblies in storage that only get moved to the line when needed to cover a shortage (rotated between shifts for freshness). The bulk of the subs would go from their assembly point to the main line to minimize wasted movement.

 

[JRP3]

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

I'm quite sure it boils down to one simple reason: Efficiency. The key to an affordable EV is maximizing range from the smallest pack possible to keep costs down, you don't do that with an upright SUV, you do it with a lower, slippery sedan. Model X has less range than the Model S. Demand was never going to be an issue for the Model 3 so no need to target a more "popular" vehicle segment with an SUV. The sedan was really the only choice which could be made.

 

[Paracelsus]

New Model 3's continue to be some of the most viewed items on eBay. The version-in-white in this link is already in the $65,000 range with 25 bids while there is still 1 day and 10 hours left to bid. Demand issues? I think not:

2017 Tesla MODEL 3 Premium Long Range | eBay

 

[JRP3]

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

I'd say the latter is the more likely assumption than him not liking the vehicle. He's trying to cash in on his cannonball run.

 

[Reciprocity]

I'm quite sure it boils down to one simple reason: Efficiency. The key to an affordable EV is maximizing range from the smallest pack possible to keep costs down, you don't do that with an upright SUV, you do it with a lower, slippery sedan. Model X has less range than the Model S. Demand was never going to be an issue for the Model 3 so no need to target a more "popular" vehicle segment with an SUV. The sedan was really the only choice which could be made.

Nailed it.. Whether on purpose or accident, it's better to have the lower demand vehicle first because Tesla has a supply problem, not a demand problem. I believe this is also what led Tesla to push Elon into doing the Y on the 3 platform. Demand is so high, they don't need to come out with a $30k small SUV on some new manufacturing process callable of 1M+ when they could more quickly copy and adapt a model 3 line for the model Y. This should cut a year or more off the production ramp for Y. They will have to charge more because they won't get all the savings they would have had with a new platform, but demand is going to be so high they can charge more. Also, I expect the reservation for model Y to be $2500+ given the demand from model 3 reservations. Could be a million reservations for model Y, or a free $2.5B loan for Tesla to use to copy production lines.

 

[EinSV]

Yes, I also wonder if the push-out of 5k/wk from Q1 to Q2 has to do with Tesla re-prioritizing SR and AWD introduction, trying to pull those in, after seeing the customer preference on the invitations they sent out.

IF Tesla rolls out the SR and AWD in Q2, which it is signaling during the configuration process, I wonder what the next steps will be. Elon is already on record saying demand for Model 3 could be 700K/year or more (Tesla Model 3 annual demand could surpass 700,000 units, says Elon Musk), and given the rave early reviews I expect it to be higher than that. We also have Model Y in the wings, the Semi and European and China GFs.

How will Tesla prioritize and manage the Model 3 ramp to 10K, Model Y, Semi, Europe and China? Getting Model 3 to 10K/week as fast as possible should allow Tesla to generate significant amounts of cash for its other projects so it seems likely that's still the highest priority. Depending on how resource intensive that is, Tesla could next get initial Model Y and Semi production up and running, and then duplicate the 3/Y lines in Europe and China. Since Model S/X sales are ramping very quickly in Europe, I wonder whether the European GF will be higher priority than China. In addition to soaring demand that bodes well for the Model 3 and Y, there is less IP, regulatory, tax and political risk in Europe IMO.

 

[ValueAnalyst]

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.

Two other factors that will drive demand: Supercharger coverage and possible upcoming refresh.

 

[Words of HABIT]

insideevs.com final numbers for 2017, USA.

Here is the competition. My comments:
- Not all EVs will become successful. Many have already plateaued and are in decline. It is not good enough for the competition to build an EV, they must build a compelling EV, and although the competition numbers are increasing and will continue to do so, the distance between Tesla and others is widening, the bar being continually reset.
- At current rate projections, for March 2018, I expect Tesla to take 1st (M3), 2nd (MS) and 3rd (MX) spots in the EV tracking for USA and never look back, not bad for an upstart.

Note: Don't be fooled. January and February figures will be guesstimates as Tesla is only manufacturer that reports quarterly instead of monthly. Insideevs always guesstimate on the low side, proof is shown for MS and MX numbers whereby every third month the numbers pop by an order of magnitude from the previous two months to compensate for their low estimates to bring in line with actual reported numbers.

Are World EV figures tracked in the same format? I'd love to see the whole picture.

Daniel