General Discussion: 2018 Investor Roundtable

[CorneliusXX]

This week there have been 3 interesting articles from Electrek and Bloomberg that have relevance to the excellent discussions TMC has had on it's 'moats' and potential competition from ICE industry giants.

First is on VW group announcing plans to produce 500K EVs at their Zwickau factory. Starting sometime next year and ramping through 2020. If they were actually able to pull this off, it might be 'real' competition for Tesla. Two and a half years to take a giant ICE plant and convert it to produce half a million EVs annually seems optimistic to me. Also it's not clear where they would find high performance batteries for that many EVs by 2020/2021. Actual cell factories they may be partnering in, are projected to ramp up to major GWh production in a much longer time frame.
VW plans to produce 1,500 electric cars per day at its Zwickau factory

Second is latest news (or repackaged news) from Diamler. Mercedes-Benz unveils aggressive electric vehicle production plan, 6 factories and a ‘global battery network’
"As we previously reported, Daimler has one of the most aggressive electrification plans amongst established automakers. They plan for Mercedes-Benz and smart cars to offer electric versions of all car models by 2022. "
Daimler says "As batteries are the heart of our electric vehicles we put a great emphasis on building them in our own factories. With our global battery network we are in an excellent position: As we are close to our vehicle plants we can ensure the optimal supply of production."
This still strikes me as mostly as Daimler EV PR smokescreen. As previously the case, what they call battery 'factories' are battery pack factories w/o cell production lines. Article points to their agreement/funding of SK Innovation to double it's cell production to 4 GWh by sometime in 2019. Their current 2 GWh is already spoken for, so presumably the add'l 2 GWh goes to Daimler. Too bad 2 GWh only powers around 25,000 full range EVs! I may be mistaken but saying you'll offer electric versions of all your models by 2022, suggests you may be adapting those models ICE designs to EV use rather than designing them for EV from scratch as Tesla has done.

I saw the third article today on Bloomberg:
The Swift Rise of a Chinese Battery Giant
The China colossus being CATL.
Article's subtitle reads "The key to overtaking Tesla by 2020? Lots of government help for EVs."
"The company plans to raise 13.1 billion yuan ($2 billion) as soon as this year by selling a 10 percent stake, at a valuation of about $20 billion. The share sale would finance construction of a battery-cell plant second in size only to Tesla Inc.’s Gigafactory in Nevada. "
A comparison chart in the article shows a typical business media goof. It fails to show that by the time this new CATL battery gigafactory is producing 25 GWh, Tesla GF1 is expected to have grown to 105 GWh annually.
They say much (all?) of the new production will go to China based EV production by the large western auto companies.
If that's the case, then CATL plans don't look to solve Daimler's non China based EV cell supply shortfalls.

If anyone can summarize what Li ion cell types CATL is now producing and plans to also develop higher performance form factor cells, that would be relevant to getting a better view on just how much CATL plans may boost the EV competitiveness of the ICE companies, which to date seem late to the party and weak.

Thanks for your efforts Bob. These three articles stood out to me too. These sorts of articles provide a rationale for trying to understand if Tesla will be worth $100b, $500b or $1T. Rapid growth in the battery and ev production is always of interest.

 

[Bobfitz1]

Does Zwickau operate at full capacity 334 days per year?

I read unionized German workers are sporadically striking for a day or two in support of the largest German Union calling for a 28 hr work week.

Don't know how many days Zwickau operates per year.

Pretty amazing biggest German union think they can get same pay and benefits while working 4 7 hour days per week.

Qualified auto workers are in short supply in Germany, but that will change when Daimler and BMW lose their highest margin sales to better high end EVs. Union may get what they want now, but holding on to it when German auto companies stop being profit machines is another story.

 

[jelloslug]

Don't know how many days Zwickau operates per year.

Pretty amazing biggest German union think they can get same pay and benefits while working 4 7 hour days per week.

Qualified auto workers are in short supply in Germany, but that will change when Daimler and BMW lose their highest margin sales to better high end EVs. Union may get what they want now, but holding on to it when German auto companies stop being profit machines is another story.

It sounds a little like the $15 an hour McDonald's cashier.

 

[RobStark]

Don't know how many days Zwickau operates per year.

I am pretty sure 1500 a day translates to no more than 400k per year.

 

[Esme Es Mejor]

I have to quibble with your numbers, as I don't think you subtracted December in-transit (800) from Jan production/delivery estimates.

I see your point, and I think you’re right that I failed to subtract the 800 cars in transit at the end of December. Subtracting that out would leave us with January production of 1875 (78/day, treading water) to 2675 (111/day, ~45% growth).

 

[dc_h]

I see your point, and I think you’re right that I failed to subtract the 800 cars in transit at the end of December. Subtracting that out would leave us with January production of 1875 (78/day, treading water) to 2675 (111/day, ~45% growth).

The only in transit number that matters is the in transit increase or decrease from the prior measurement period. Based on the seeming 500 3’s in the lot in Fremont it seems likely that in transit is much higher now than January 1st. At that point deliveries were all or almost all California and now are all the way to Florida and Boston. I think production is about 3000 and change for January and we will find out next week. Hard to say for February but I think production will be about 5000 to 6000. Like model S and X before they are likely going to stuff as much Midwest and east coast product out through mid February as possible before shifting to west coast. I expect in transit is close to or over 2000 and could be 3000 end of February before dropping in March as they shorten the supply chain. 15,000 deliveries is not impossible even if production is not be that much higher.

 

[zmarty]

Via reddit, an interesting teardown of a Model 3 battery cell that highlights some manufacturing features:

 

[dandurston]

Does anyone fully understand TSLA's $546 million ABS deal this week, and can explain it? I think I understand the gist of it, but not well enough to evaluate how good of a deal it is.

My simpleton understanding is that over the last few years Tesla has leased cars to customers and thus are entitled to (1) a string of lease payments and (2) the remaining car after the lease is over. Rather than wait for those lease payments to trickle in, Tesla has sold the string of payments in exchange for a lump sum now. Cool. That seems reasonable to me since not doing so leaves a lot of funds tied up.

In agreeing to the deal, I can understand the buyers demanding a risk premium because of the risk of lease defaults so they don't get all their money. Fair enough. By why is there also this talk/worry about the residual value of the cars? Has Tesla sold not only the string of lease payments AND the value of the remaining depreciated car? So the bond buyers end up with the used cars at the end of it? And Tesla no longer has any ownership in these cars? Seems weird to me that the buyers would want to own the used cars, but I guess it would let TSLA free up more funds.

What seems weird to me is that I believe the residual value of these cars was estimated for the purposes of the deal at 50% of MSRP. I could be wrong, but I think 3 year old Tesla's have typically been worth closer to 60-65%, so it seems like not a great deal for Tesla to sell this for 50%.

Also, as I understand it, the deal closed for risk premiums of 2.65% above "benchmarks". I guess this captures both the lease default risk and the retained value risk. I don't know what the benchmarks rates are, but if the benchmark rate + 2.65% is higher than the interest rates the leases were written at, then it seems like Tesla would have lost some money here, but I guess they also off-loaded some risk. Can anyone comment if this is a "good" rate, and if there are major errors in my attempt at explaining.

Thanks!

 

[DurandalAI]

So some people have mentioned that the current rate of Model 3 production is less than predicted and/or proposed. True. I would also mention that this January, Tesla has gone from 1,650 cars to over 3375 in January that’s a YOY increase of over 200%. That’s some awesome growth if you ask me, especially if we think that February will likely be 15% higher than January. That’s explosive growth.

Food for thought. 200% growth in unit sales YOY.

 

[SageBrush]

MEANWHILE...

Some New Mexico news. In case you’re not aware (the media certainly isn’t), New Mexico is a State in the Southwestern U.S. It’s historically been one of the most anti-Tesla states in the union thanks to harsh franchise-dealer laws that have banned Tesla from having ANYTHING in this state: no service centers, no stores, no galleries. To be an owner here is to know what it’s like to have to book a hotel when taking one’s car in for service... in CO or AZ.

And now the NEWS!

It’s taken three years but we finally have the governor, the state senate, the state house of representatives, the Tesla team, Tesla’s lobbyists, my group the Tesla Owners Club of New Mexico, and the New Mexico Automotive Dealers Association (NMADA) all talking.

We have a shiny new BILL, SB 255, presented to the legislature today. And we have HEARINGS featuring owner testimony, next week! We are asking for the law to be changed to allow stores AND service centers!

Wish us luck!

Good Luck !!!

I still own a home in Abq even though I now reside in Colorado.
Is there room for more advocacy and testimony in your hearings ?

 

[Manton]

This week there have been 3 interesting articles from Electrek and Bloomberg that have relevance to the excellent discussions TMC has had on it's 'moats' and potential competition from ICE industry giants.

First is on VW group announcing plans to produce 500K EVs at their Zwickau factory. Starting sometime next year and ramping through 2020. If they were actually able to pull this off, it might be 'real' competition for Tesla. Two and a half years to take a giant ICE plant and convert it to produce half a million EVs annually seems optimistic to me. Also it's not clear where they would find high performance batteries for that many EVs by 2020/2021. Actual cell factories they may be partnering in, are projected to ramp up to major GWh production in a much longer time frame.
VW plans to produce 1,500 electric cars per day at its Zwickau factory

Second is latest news (or repackaged news) from Diamler. Mercedes-Benz unveils aggressive electric vehicle production plan, 6 factories and a ‘global battery network’
"As we previously reported, Daimler has one of the most aggressive electrification plans amongst established automakers. They plan for Mercedes-Benz and smart cars to offer electric versions of all car models by 2022. "
Daimler says "As batteries are the heart of our electric vehicles we put a great emphasis on building them in our own factories. With our global battery network we are in an excellent position: As we are close to our vehicle plants we can ensure the optimal supply of production."
This still strikes me as mostly as Daimler EV PR smokescreen. As previously the case, what they call battery 'factories' are battery pack factories w/o cell production lines. Article points to their agreement/funding of SK Innovation to double it's cell production to 4 GWh by sometime in 2019. Their current 2 GWh is already spoken for, so presumably the add'l 2 GWh goes to Daimler. Too bad 2 GWh only powers around 25,000 full range EVs! I may be mistaken but saying you'll offer electric versions of all your models by 2022, suggests you may be adapting those models ICE designs to EV use rather than designing them for EV from scratch as Tesla has done.

I saw the third article today on Bloomberg:
The Swift Rise of a Chinese Battery Giant
The China colossus being CATL.
Article's subtitle reads "The key to overtaking Tesla by 2020? Lots of government help for EVs."
"The company plans to raise 13.1 billion yuan ($2 billion) as soon as this year by selling a 10 percent stake, at a valuation of about $20 billion. The share sale would finance construction of a battery-cell plant second in size only to Tesla Inc.’s Gigafactory in Nevada. "
A comparison chart in the article shows a typical business media goof. It fails to show that by the time this new CATL battery gigafactory is producing 25 GWh, Tesla GF1 is expected to have grown to 105 GWh annually.
They say much (all?) of the new production will go to China based EV production by the large western auto companies.
If that's the case, then CATL plans don't look to solve Daimler's non China based EV cell supply shortfalls.

If anyone can summarize what Li ion cell types CATL is now producing and plans to also develop higher performance form factor cells, that would be relevant to getting a better view on just how much CATL plans may boost the EV competitiveness of the ICE companies, which to date seem late to the party and weak.

Thanks for your efforts Bob. These three articles stood out to me too. These sorts of articles provide a rationale for trying to understand if Tesla will be worth $100b, $500b or $1T. Rapid growth in the battery and ev production is always of interest.

Keep in mind that China is looking to be the world leader in battery production and is putting up something like $2B+ in subsidies for mega GF's. Knowing Elon, he'll get a great deal on the new GF. Knowing Chinese work ethic and efficiency we may see a new GF reasonably soon. It'll be able to produce and sell Model 3's with a healthy profit to a massive market without huge import tariffs.

 

[schonelucht]

The reporter thinks the main benefit for Home Depot is renting out underused floor space.

And not associating Home Depot with the Tesla brand. LOL.

It's a big win for Home Depot to be associated with the Tesla brand for sure. But this isn't the Home Depot investor forum. I am not convinced it's a win for Tesla to be associated with a Home Depot or Lowe's shopping experience.

 

[schonelucht]

These will be Tesla branded stores. Not Solar City. Huge difference.

We also have to think why Tesla is such a strong brand while SolarCity wasn't. The former you could walk into a store, get some information and feel no pressure at all but to enjoy the cars. The latter you were shopping for a hammer only to get accosted by a sales person trying to hook you on something unrelated. Unless Tesla executes carefully, these new shop-in-shops could very well turn out more of the latter than the former. As Tesla is rolling out incentives for sales associates in Tesla stores we've already seen some of the original Tesla shopping magic disappear in it's own branded stores.

I am also questioning the economics. The message has always been that SolarCity sales model was sound if not for the large customer acquisition costs. Having popup stores everywhere was certainly part of that. Supposedly the merger with Tesla was going to solve this neatly by folding the products in to the Tesla stores, massively reducing SG&A costs. But now it turns out that Tesla is going to run up acquisition costs for solar&energy again by putting dedicated sales people and assets in Home Depot and possibly Lowes. Maybe Tesla has no choice : they are committed to buying Panasonic's solar panels produced in Buffalo and with foot traffic in their own stores there is just not enough conversion? It'll be interesting if this is touched upon in the conference call.

 

[schonelucht]

In agreeing to the deal, I can understand the buyers demanding a risk premium because of the risk of lease defaults so they don't get all their money. Fair enough. By why is there also this talk/worry about the residual value of the cars? Has Tesla sold not only the string of lease payments AND the value of the remaining depreciated car? So the bond buyers end up with the used cars at the end of it? And Tesla no longer has any ownership in these cars? Seems weird to me that the buyers would want to own the used cars, but I guess it would let TSLA free up more funds.

So the way (I think) it works is that Tesla sets up a limited liability company that is fully owned, operated and consolidated by Tesla. The leases in question, both the financial instruments (ie, income from the customers) and the assets (ownership of the car) are transferred to this company. The subsidiary pays Tesla some $500M for this. To pay the $500M the subsidiary writes a bond, entitling bond holders to all future income from this particular company (and also obviously clauses to make it operate its business in a way that is in direct interest of the bondholders). So while Tesla has sold the value of the remaining depreciated car at the end of the lease, the bond holders will not own that car, they just have a payment due from the limited company that now owns the car.

If at some point, residual values are higher and/or defaults lower than initially estimated, the limited company will make a profit. I believe this profit will revert to Tesla. If on the other hand there is a shortfall then that limited company will not be able to pay bond holders their final tranches. But Tesla will just walk away. So that''s why, even if the assets are fully controlled by Tesla, it is still the bond holders that have the most interest in making sure that their residual values are estimated correctly.

I suppose since this is Tesla's first round, bond holders are looking for a lot of safe side. Ie, they'll be demanding that residual values are estimed lowly and defaults highly. In addition to a fat interest rate. Possibly this makes it more expensive for Tesla to sell out this particular batch of cars than to just keep it on the books. But I believe the real value to Tesla is to get started with it so future potential bond buyers understand the economics of leased Tesla cars, are able to predict residuals and default rates better and over time bid down between them the safety margin they ask from Tesla.

 

[aubreymcfato]

We also have to think why Tesla is such a strong brand while SolarCity wasn't. The former you could walk into a store, get some information and feel no pressure at all but to enjoy the cars. The latter you were shopping for a hammer only to get accosted by a sales person trying to hook you on something unrelated. Unless Tesla executes carefully, these new shop-in-shops could very well turn out more of the latter than the former. As Tesla is rolling out incentives for sales associates in Tesla stores we've already seen some of the original Tesla shopping magic disappear in it's own branded stores.

I am also questioning the economics. The message has always been that SolarCity sales model was sound if not for the large customer acquisition costs. Having popup stores everywhere was certainly part of that. Supposedly the merger with Tesla was going to solve this neatly by folding the products in to the Tesla stores, massively reducing SG&A costs. But now it turns out that Tesla is going to run up acquisition costs for solar&energy again by putting dedicated sales people and assets in Home Depot and possibly Lowes. Maybe Tesla has no choice : they are committed to buying Panasonic's solar panels produced in Buffalo and with foot traffic in their own stores there is just not enough conversion? It'll be interesting if this is touched upon in the conference call.

I think that what's changed is overall solar strategy: Tesla, with its own brand, will now sell Powerwalls and solar roofs, which are premium products, so the profit is gonna be much more than before.
I'm not even sure they will continue to sell canonical solar systems... I'd be glad if they did, but I haven't heard any news about that, for months now.

 

[RobStark]

It's a big win for Home Depot to be associated with the Tesla brand for sure. But this isn't the Home Depot investor forum. I am not convinced it's a win for Tesla to be associated with a Home Depot or Lowe's shopping experience.

100% it isn't a win for Tesla to be associated with Home Depot.

It is 100% a Tesla win to have access to Home Depot's customers.

The Tesla stores within Home Depot will be run by Tesla Employees and will be a Tesla experience.

In the US there is no high end hardware stores.

There are stores like Restoration Hardware that is more a furniture store that also sells premium pulls and knobs for cabinets of various types. Tesla doesn't need access to these customers. They are the types of folks that shop in Malls where Tesla has a presence.

Tesla does not want to be the Ferrari of Green Energy. Not only for 1%ers.

Tesla wants to be ubiquitous not exclusive. By which I mean products for 40%ers. I know Tesla will not be selling products to minimum wage earners.

You sell the Roadster 2.0 to make the Tesla brand desirable to the masses.

 

[RobStark]

We also have to think why Tesla is such a strong brand while SolarCity wasn't. The former you could walk into a store, get some information and feel no pressure at all but to enjoy the cars. The latter you were shopping for a hammer only to get accosted by a sales person trying to hook you on something unrelated. Unless Tesla executes carefully, these new shop-in-shops could very well turn out more of the latter than the former. As Tesla is rolling out incentives for sales associates in Tesla stores we've already seen some of the original Tesla shopping magic disappear in it's own branded stores.

I am also questioning the economics. The message has always been that SolarCity sales model was sound if not for the large customer acquisition costs. Having popup stores everywhere was certainly part of that. Supposedly the merger with Tesla was going to solve this neatly by folding the products in to the Tesla stores, massively reducing SG&A costs. But now it turns out that Tesla is going to run up acquisition costs for solar&energy again by putting dedicated sales people and assets in Home Depot and possibly Lowes. Maybe Tesla has no choice : they are committed to buying Panasonic's solar panels produced in Buffalo and with foot traffic in their own stores there is just not enough conversion? It'll be interesting if this is touched upon in the conference call.

I am sure they will do both. Tesla Solar Stores within Home Depot and Tesla Solar specialist at Tesla Auto stores.

Solar City had sales people at Home Depot but most of their sales came from cold calling. I used to get calls about 3x a week before they ended the practice.

The reason why it was such a horrible experience was because SC salespeople were commision only. In the weeks they made no sales the could draw a minimum wage check that would be deducted from future commissions.

You had desperate sales people needing to make this sale to pay rent. And 10% of the salesforce who were superstars and made over $100k per year.In other words, master manipulators.

If Tesla wants the Tesla experience, they will pay their Tesla sales people a decent wage. Or a slightly lower decent wage plus commissions to motivate people. But not having them so desperate that they acost people shopping for light bulbs.

 

[avoigt]

Makes sense to me that SC for Semi will be placed where they load and unload. IOW we may not see at start many if at all chargers for the Semi be build outside in the wild ... at a more mature status of the production that should change.

Also I predict that the large truck fleet owners know well what they will need in terms of charging and Tesla working with them makes me confident that a solid solution will be found.

"Reuters has learned that Tesla is collaborating with Anheuser-Busch, PepsiCo and United Parcel Service Inc to build on-site charging terminals at their facilities as part of the automaker’s efforts to roll out the vehicle next year. (...)

A Tesla spokeswoman confirmed that the Fremont, California-based company is working closely with large customers to build Semi charging stations. She declined to comment further on the arrangements or Tesla’s plans for its own truck-charging terminals.

Anheuser-Busch is evaluating installing its own charging equipment for its 40 Tesla Semis at large breweries and other key locations, according to James Sembrot, senior director of supply chain for the St. Louis-based beer maker.

“What was important to us was to make a big investment in this cutting-edge technology and secure our place in line,” Sembrot said.

UPS, too, expects to work closely with Tesla on building on-site charging stations, according to Scott Phillippi, global engineering director for the parcel delivery behemoth. The Atlanta-based company pre-ordered 125 Semis in December.

Grocery chain Loblaw Companies Ltd will likely use solar power to juice charging stations for the 25 Semis that it has pre-ordered from Tesla, according to spokeswoman Catherine Thomas. She said Loblaw was considering Tesla as well as “a few other companies” for technology and design."

Exclusive: How Tesla's first truck charging stations will be built

 

[BETA1019]

Man you guys are "see the glass half full " types. According to the article Solar City had already tried this approach, without success. Plus the rationale for bailing SC out was the cross selling in Tesla stores. Not hearing too much buzz about how great that plan has worked out over a year after the "merger".

That’s because they are purposefully not pushing hard on the solar front. They’re anticipating the solar roof tiles to be the mass market product, and for now they are taking a step back and setting the foundations for explosive growth once they are in production.

 

[Cattledog]

In the US there is no high end hardware stores.

Treehouse aims to be that:
TreeHouse | Beautiful, Healthy & Sustainable Home Upgrades
But they have only 3 stores right now. We designed their store in Dallas and it is net zero energy and has a couple Tesla Powerpacks in use and on display. They sell Powerwalls as you might imagine. The Treehouse customers would be the rifle shot to the Home Depot shotgun.