General Discussion: 2018 Investor Roundtable

[jelloslug]

Slowing down now may actually be key to building millions of cars faster. If 3 quarters of profits & being added to the S&P 500 cause a significant bump for their market cap (say, $80-100B), it becomes much easier to buy one of the legacy automakers.

Purchasing a legacy automaker would get Tesla massive production capacity & a substantial amount of cash (more than $10 billion in most cases). ICE production lines could be converted to EV production lines as fast as Tesla can build out battery capacity.

It’s highly unlikely that Tesla would want to be burdened with the baggage of a legacy automaker. The facilities and equipment for the existing lines are virtually worthless for a new car and the burden existing products are just a money drain.

 

[defc0n]

Gali is unfortunately misinformed and is spewing nonsense. See my reply to him below. Feel free to like / RT.

Generalenthu on Twitter

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He had some other good points I think. The one that resonated with me, as a future model Y buyer, is that there may not be any incentive for me to put down a deposit for a place in line if all the higher optioned vehicles will get to cut in front of me later anyway. I’d kick myself for giving out an interest free loan when there wasn’t much point.

 

[Krugerrand]

Slowing down now may actually be key to building millions of cars faster. If 3 quarters of profits & being added to the S&P 500 cause a significant bump for their market cap (say, $80-100B), it becomes much easier to buy one of the legacy automakers.

Purchasing a legacy automaker would get Tesla massive production capacity & a substantial amount of cash (more than $10 billion in most cases). ICE production lines could be converted to EV production lines as fast as Tesla can build out battery capacity.

I agree with the first paragraph but not the sevond. Too much baggage from purchasing an ICE legacy automaker, least of all trying to change the culture of the employees. But also it’s often easier, faster and chraper to start fresh than to retrofit - ie production line.

Edit: what jello said

 

[Krugerrand]

He had some other good points I think. The one that resonated with me, as a future model Y buyer, is that there may not be any incentive for me to put down a deposit for a place in line if all the higher optioned vehicles will get to cut in front of me later anyway. I’d kick myself for giving out an interest free loan when there wasn’t much point.

Phew! One less person in front of me.

 

[Skryll]

...

While also implying Tesla isn't raising capital because nobody will give it to them.

None of the wallstreet players. But china / tencent / panasonic etc plus hundreds of thousands of prospective customers are happy to, ROI is awesome.

 

[Esme Es Mejor]

I agree with the first paragraph but not the sevond. Too much baggage from purchasing an ICE legacy automaker, least of all trying to change the culture of the employees. But also it’s often easier, faster and chraper to start fresh than to retrofit - ie production line.

Edit: what jello said

I’m glad we agree on the first part. That’s the part I’m most certain of.

The second part reminds me of the game RISK, where you could wipe out an opponent & take his cards, then use those cards to get armies to wipe out the next opponent. Maybe that’s too obscure a reference, but I hope some people understand it.

Tesla has an advantage because, like Apple when the iPhone was new, it has recession-proof products. The 3, the Y, and the Semi are recession-proof. While other automakers need cash hoards to survive the next recession, Tesla needs that cash to flow into production capacity for products that will only become more attractive in a recession.

I’d certainly prefer that Tesla not be burdened with the legacy costs of a legacy automaker. But I’d also like Tesla to not be burdened by the whims of the capital markets, and the manufactured crises of shorts trying to turn their failed short thesis into a successful one.

 

[skitown]

He had some other good points I think. The one that resonated with me, as a future model Y buyer, is that there may not be any incentive for me to put down a deposit for a place in line if all the higher optioned vehicles will get to cut in front of me later anyway. I’d kick myself for giving out an interest free loan when there wasn’t much point.

I'm hard pressed to come up with a company or organization that I'd rather donate some interest money to. In fact, I have a second Model 3 reservation that I placed about a year ago (took a flyer on wondering if they might unveil the Model Y and let Model 3 reservations be converted to Model Ys). Anyway, that clearly didn't happen and now I'm debating when to get my reservation money back. I figure I'll do it after Tesla has successfully ramped Model 3 and shown profitability. I would kick myself for taking back my reservation money if it was helping them right now. Even though I realize this is a virtual impossibility.

 

[SPadival]

Interesting podcast from Gali at Hypercharge arguing that Tesla is making a big mistake by choosing to delay investments for 2 quarters in order to show profitability in Q3/Q4.

I disagree entirely with the podcast. Just goes to show that we Tesla fans are not lemmings.

He seems to have no idea of the kind of bear attack that Tesla is facing. He seems to think it is all conspiracy theory.

 

[Bobfitz1]

Nummi was an assembly only plant. Tesla assembles, stamps sheet metal, winds motors, builds seats, builds battery packs, and does R&D.

Exactly. "In fairness to the journalists they’ve added Tesla response too". If these journalists were fair or objective, they would have elaborated the facts as you did. Not say "Tesla argues" These facts are widely available and understood. But add those few extra words would have undercut their bogus implication that Tesla is operating Fremont far less efficiently than NUMMI.

 

[lklundin]

Except that the factory is out of space. There is no room to double what they have. They will likely need to focus on debottlenecking and improving line speed.

It may take some time, but Tesla could make space in Fremont by stopping the construction/assembly of the Model S/X drivetrain there - and ideally use parts derived from the M3 design, made at GF1.

 

[Cobos]

So, I read the recent Bloomberg article.
The same article has a comparison of the number of workers at Fremont to the number of workers at NUMMI; this is dishonest because Fremont does a lot more of the car construction than NUMMI did (nobody added up the subassembly plant employees who supply NUMMI). There's a similarly dishonest comparison of number of human work-hours to do *final assembly* of a Toyota with number to do *full construction* of a Tesla.

An interesting question. What used to be called the NUMMI plant had less square footage than what is now called the Tesla Freemont factory right? Tesla has built out a few more buildings on the original NUMMI campus. The bigger question is all the other buildings in the Freemont area that Tesla owns/leases, like the former Solyndra campus. When Musk talks about Freemont are these also included in the headcount? Does Teslas Freemont factory actually include 50-100% more space then the original?

Cobos

 

[StockCynic]

I’m glad we agree on the first part.

Tesla has an advantage because, like Apple when the iPhone was new, it has recession-proof products. The 3, the Y, and the Semi are recession-proof. While other automakers need cash hoards to survive the next recession, Tesla needs that cash to flow into production capacity for products that will only become more attractive in a recession.

That is a bold assertion, recession-proof products? I don't think that is certain as you think. There certainly is a difference between buying a new phone vs. a car.

I think Tesla would be wise to raise capital as soon as possible. The Fed is raising interest rates like clockwork each quarter, each time they bump up the federal funds rate that has cascading effects in regards to the cost of capital for ALL companies. In tightening cycles the increase in the cost of capital is more pronounced for companies with non-investment grade credit ratings. If Tesla were to wait until after Q12019 to raise cash it is extremely likely that interest rates will be 75 basis points higher than they are now. When you are talking billions of dollars for the future growth projects 1% delta in interest rates is not insignificant.

 

[Esme Es Mejor]

That is a bold assertion, recession-proof products? I don't think that is certain as you think. There certainly is a difference between buying a new phone vs. a car.

I think Tesla would be wise to raise capital as soon as possible. The Fed is raising interest rates like clockwork each quarter, each time they bump up the federal funds rate that has cascading effects in regards to the cost of capital for ALL companies. In tightening cycles the increase in the cost of capital is more pronounced for companies with non-investment grade credit ratings. If Tesla were to wait until after Q12019 to raise cash it is extremely likely that interest rates will be 75 basis points higher than they are now. When you are talking billions of dollars for the future growth projects 1% delta in interest rates is not insignificant.

It isn’t a bold assertion at all. The 3 is production-constrained, not demand-constrained. The Y and Semi don’t exist yet, but when launched they will be production-constrained, not demand-constrained. And in a recession, they will take market share even faster.

As for you’re second paragraph, you’re right. If Tesla were to issue debt, they should do it soon. Rates are rising, and are poised to continue to do so. But they shouldn’t issue debt. They should issue equity. And they shouldn’t do that until the market is firmly convinced, which it should be by Q1 or Q2 of 2019.

 

[wdolson]

Nummi was an assembly only plant. Tesla assembles, stamps sheet metal, winds motors, builds seats, builds battery packs, and does R&D.

When Tesla bought the NUMMI factory there was a metal stamping press already there. Though you are correct NUMMI was mostly just final assembly and most of the parts came from somewhere else.

Tesla has been moving sub-assembly work out of the main factory. Battery packs used to be made at Fremont, but are now done at the GF, even the S/X packs. I'm not sure where motor assembly is done, but I believe the seat shop was moved somewhere else in the Bay Area.

I was thinking Tesla could build some Model Ys in Fremont. By the time the Model Y is ready for production, it's likely their Chinese and possibly their European factories will be up and running. If they build all car models in each factory, that reduces the demand on the Fremont factory and they can scale back some Fremont production of existing cars to make room for North American Model Y manufacturing.

On the other hand if some foreign manufacturers close factories in North America due to the trade war, Tesla might be able to pick up those recently abandoned factories on the cheap with a local workforce ready to go.

As far as capital raise goes, Tesla could possibly raise money in 2019 by selling more stock. Especially if it goes up later this year.

 

[hobbes]

By the time the Model Y is ready for production, it's likely their Chinese and possibly their European factories will be up and running. If they build all car models in each factory, that reduces the demand on the Fremont factory and they can scale back some Fremont production of existing cars to make room for North American Model Y manufacturing.

IIRC Tesla said no S/X were to be built in China, just Model 3. Sorry, don´t have a link at the moment. Maybe someone else?

I guess making low numbers of the same model in many different factories is not as efficient as making them all at the same place. Probably Tesla figures S/X output will stay about the same so Fremont is fine, while demand for 3/Y will be much bigger so that can´t be satisfied by one factory anyway.

 

[wdolson]

IIRC Tesla said no S/X were to be built in China, just Model 3. Sorry, don´t have a link at the moment. Maybe someone else?

I guess making low numbers of the same model in many different factories is not as efficient as making them all at the same place. Probably Tesla figures S/X output will stay about the same so Fremont is fine, while demand for 3/Y will be much bigger so that can´t be satisfied by one factory anyway.

Dividing up S/X production might not be efficient, but if they split Model 3 production between the US, China, and Europe, that should free up at least one line at the Fremont factory.

 

[avoigt]

https://twitter.com/VickiSalvador3h3 hours ago
Over 2000 cars in 2 days, and were not slammed. Ez money.

Wow !!!

 

[avoigt]

Someone is watching us....



Elon Musk‏Verified account @elonmusk

Interesting read

2:33 AM - 13 Jul 2018

jesselivenomore's well deserved day of fame!

 

[neroden]

https://twitter.com/VickiSalvador3h3 hours ago
Over 2000 cars in 2 days, and were not slammed. Ez money.

Wow !!!

Since she's a production associate, I figure that means production but it could also mean *deliveries* (which would be great for confirming that the delivery side can handle the production).

 

[SPadival]

Since she's a production associate, I figure that means production but it could also mean *deliveries* (which would be great for confirming that the delivery side can handle the production).

Paint shop, to be precise.