Hi, I’m a short seller

[sunny-value]

An industry guy once told me the teardown firms were usually spot-on for off-the-shelf parts but often off by an order of magnitude on custom or in-house parts. Tesla has a lot of the latter. Also note the teardown guys tend to talk in terms of contribution margin, not GAAP gross margin.

That being said, I don't exactly why Model 3 costs so much. But it's not depreciation, labor or anything else in Tesla's direct control. They don't user super-premium materials. They have enough volume to get reasonable pricing on parts. All these things can get better, but they can't get that much better. Tesla has focused on stabilizing the production lines and getting costs down for nine months, with only minor improvements. The low hanging fruit is gone.

One clue is the number of employees per car. If you compare it to the large majors, I think Tesla has about twice as many employees per annual car production. I know labor isn't the largest component of a cars costs, but it is something. Also, does any car company actually have a positive net margin on its EVs? Or are they all cross-subsidizing? It could be that EVs just cost more across the board and will until battery costs come down another few thousand per unit. It can't be the metal, or other components (of which there are fewer).

 

[sunny-value]

That's quite the conspiracy theory.
China wants and needs EVs. It's a national security issue (in addition to pollution). They don't want to rely on oil imports for their energy needs. They are phasing out fossil fuels. They like Tesla's mission and will support it.

That's precisely the point.
They want EV tech but they want their domestic companies to dominate it. If Tesla is 2-3 years ahead of their domestic companies, this would be the evil way to close the gap. Either that or other companies will send spies in when Tesla hires locals. The spies would reverse engineer the blueprints and plans. Don't tell me Chinese companies don't do stuff like this.

 

[anon]

I think Tesla has about twice as many employees per annual car production

While Tesla's employee count is likely higher than Musk was hoping for with his "alien dreadnought" factory, it's worth remembering that the total count is not comparable to other manufacturers because Tesla's manufacturing is relatively vertically integrated, and also Tesla's stores and service locations - other manufacturers use dealership networks instead (or at least in large part).

 

[sunny-value]

While Tesla's employee count is likely higher than Musk was hoping for with his "alien dreadnought" factory, it's worth remembering that the total count is not comparable to other manufacturers because Tesla's manufacturing is relatively vertically integrated, and also Tesla's stores and service locations - other manufacturers use dealership networks instead (or at least in large part).

Good point. Those dealerships support all that employee count through lots of service, selling extended warranties and warranties on used cars, financing plans, and on used car mark-ups and so on. Since Tesla has less of all of the above, it probably still explains at least some of the net margin difference (even if you included dealerships in the majors businesses).

 

[TheTalkingMule]

Good point. Those dealerships support all that employee count through lots of service, selling extended warranties and warranties on used cars, financing plans, and on used car mark-ups and so on. Since Tesla has less of all of the above, it probably still explains at least some of the net margin difference (even if you included dealerships in the majors businesses).

Is this meant to imply dealerships are net negative on cost or that they provide any value whatsoever? I would take issue with both of those sentiments.

 

[sunny-value]

Is this meant to imply dealerships are net negative on cost or that they provide any value whatsoever? I would take issue with both of those sentiments.

Dealerships pay their employees. They take in more money than a vertically integrated, low repair business that doesn't do much with used cars. So the employees that the majors have working at dealers don't count on their IS or BS, and whatever margin they do make shows up on the private balance sheets and income statements of the dealers. But whatever it is, the rate of return on those dealerships has to be higher than what it is on the corresponding parts of TSLA's vertically integrated model, because they simply do less of that stuff. But they still have the employee count of dealer+manufacturer.

 

[Electroman]

Dealerships pay their employees. They take in more money than a vertically integrated, low repair business that doesn't do much with used cars. So the employees that the majors have working at dealers don't count on their IS or BS, and whatever margin they do make shows up on the private balance sheets and income statements of the dealers. But whatever it is, the rate of return on those dealerships has to be higher than what it is on the corresponding parts of TSLA's vertically integrated model, because they simply do less of that stuff. But they still have the employee count of dealer+manufacturer.

and don't forget tesla builds and runs the largest battery factory, whereas the other OEMs are simply buying them off the shelf.

Those factories need employees too.

 

[TheTalkingMule]

Dealerships pay their employees. They take in more money than a vertically integrated, low repair business that doesn't do much with used cars. So the employees that the majors have working at dealers don't count on their IS or BS, and whatever margin they do make shows up on the private balance sheets and income statements of the dealers. But whatever it is, the rate of return on those dealerships has to be higher than what it is on the corresponding parts of TSLA's vertically integrated model, because they simply do less of that stuff. But they still have the employee count of dealer+manufacturer.

I see, misinterpreted your post. The amount of cost/waste saved by simply avoiding nearly all sales and advertising cost should have earned Musk a Noble by now. Anyone still reliant on a dealership model will almost certainly be dead in 10 years.

 

[sunny-value]

Well there is a flip side to the dealership issue, which is capital. All those dealerships are owned by locals in each area who borrow money from their local banks (or national, but the point being the manufacturer isn't on the hook) to fund all the inventory and to take all the inventory risk. If there is an economic slowdown, the dealers are the ones taking the risk and cutting prices on last years models to move them off their lots. Because Tesla owns all the inventory and stores and so on, it has to either have some kind of just in time manufacturing process or it has to fund all that inventory and take inventory risk. Originally I thought they weren't going to have much inventory but now it is clear that they can't avoid having a quarter or so of production eventually (especially as they are shipping all over the world from one shop until Shanghai is done). I think this inventory buildup partially explains why the Q1 numbers were so bad.

 

[Doggydogworld]

Well there is a flip side to the dealership issue, which is capital. All those dealerships are owned by locals in each area who borrow money from their local banks (or national, but the point being the manufacturer isn't on the hook) to fund all the inventory and to take all the inventory risk. If there is an economic slowdown, the dealers are the ones taking the risk and cutting prices on last years models to move them off their lots. Because Tesla owns all the inventory and stores and so on, it has to either have some kind of just in time manufacturing process or it has to fund all that inventory and take inventory risk. Originally I thought they weren't going to have much inventory but now it is clear that they can't avoid having a quarter or so of production eventually (especially as they are shipping all over the world from one shop until Shanghai is done). I think this inventory buildup partially explains why the Q1 numbers were so bad.

US carmaker+dealers target two months of inventory and more often run high than low. Tesla inventory runs closer to one month at the end of the quarter but is 2+ months mid-quarter. Unwinding the wave would take them closer to 6 weeks at all times. Financing costs would be about the same and operational costs would be much lower. The numbers would look bad for a quarter, though.

 

[Reality]

Well there is a flip side to the dealership issue, which is capital. All those dealerships are owned by locals in each area who borrow money from their local banks (or national, but the point being the manufacturer isn't on the hook) to fund all the inventory and to take all the inventory risk. If there is an economic slowdown, the dealers are the ones taking the risk and cutting prices on last years models to move them off their lots. Because Tesla owns all the inventory and stores and so on, it has to either have some kind of just in time manufacturing process or it has to fund all that inventory and take inventory risk. Originally I thought they weren't going to have much inventory but now it is clear that they can't avoid having a quarter or so of production eventually (especially as they are shipping all over the world from one shop until Shanghai is done). I think this inventory buildup partially explains why the Q1 numbers were so bad.

good post, I agree

are there shorts here that really dont get banned?

 

[sunny-value]

good post, I agree

are there shorts here that really dont get banned?

I dunno. Are you going to be obnoxious? I think people who are obnoxious or impolite should be banned regardless of which side they invest on. I can't begrudge a short because I was a long from $24 to $355 and am neither in nor out right now. If you're short from 355 down to 25 I guess we'll be even in some weird sense of the word.

I'm not quite sure where most people on here fall in terms of being EV fans vs Tesla fans. One could be an EV fan for example, and acknowledge that as of now, BYD is doing more globally for CO2 emission reduction (esp including their buses) than Tesla has. China certainly needs EV more than we do outside of a few large cities from a pure particulate pollution perspective.

 

[Reality]

I dunno. Are you going to be obnoxious? I think people who are obnoxious or impolite should be banned regardless of which side they invest on. I can't begrudge a short because I was a long from $24 to $355 and am neither in nor out right now. If you're short from 355 down to 25 I guess we'll be even in some weird sense of the word.

I'm not quite sure where most people on here fall in terms of being EV fans vs Tesla fans. One could be an EV fan for example, and acknowledge that as of now, BYD is doing more globally for CO2 emission reduction (esp including their buses) than Tesla has. China certainly needs EV more than we do outside of a few large cities from a pure particulate pollution perspective.

I dont think im obnoxious

I am an EV fan, but TMC does not strike me as EV fans, just Tesla fans/investors.

 

[Spacemanspliff]

An industry guy once told me the teardown firms were usually spot-on for off-the-shelf parts but often off by an order of magnitude on custom or in-house parts. Tesla has a lot of the latter. Also note the teardown guys tend to talk in terms of contribution margin, not GAAP gross margin.

That being said, I don't exactly why Model 3 costs so much. But it's not depreciation, labor or anything else in Tesla's direct control. They don't user super-premium materials. They have enough volume to get reasonable pricing on parts. All these things can get better, but they can't get that much better. Tesla has focused on stabilizing the production lines and getting costs down for nine months, with only minor improvements. The low hanging fruit is gone.

So as Musk has mentioned the game of pennies. Shouldn't Custom/in-house parts save them money in the long run?

In the past you've mentioned that now that solar opex has wound down you expect automotive opex to show its growth, what do you think auto Opex settles at? You seemed to think higher than 6B roughly fixed, which seems to insinuate something more than just Service centers/superchargers, etc driving up Automotive Opex.

 

[abasile]

I am an EV fan, but TMC does not strike me as EV fans, just Tesla fans/investors.

I don't think I'm alone here in stating that because I'm an EV fan, I'm a Tesla fan. It seems to me that Tesla is doing much more to further EV adoption, internationally, than any other company. Thanks to Tesla, we are an EV-only household and we make full use of the large Tesla battery pack and road trip capabilities. Tesla has also played a valuable role in prodding existing automakers to introduce their own EVs.

One can of course be a Tesla fan and at the same time express pessimism as to Tesla's growth prospects and profit potential. While I would tend to disagree with such a position, there are benefits in allowing well-reasoned exchanges.

 

[sunny-value]

I dont think im obnoxious

I am an EV fan, but TMC does not strike me as EV fans, just Tesla fans/investors.

I think its a subset of EV fans with some serious Teslafanatics thrown in.

 

[sunny-value]

I don't think I'm alone here in stating that because I'm an EV fan, I'm a Tesla fan. It seems to me that Tesla is doing much more to further EV adoption, internationally, than any other company. Thanks to Tesla, we are an EV-only household and we make full use of the large Tesla battery pack and road trip capabilities. Tesla has also played a valuable role in prodding existing automakers to introduce their own EVs.

One can of course be a Tesla fan and at the same time express pessimism as to Tesla's growth prospects and profit potential. While I would tend to disagree with such a position, there are benefits in allowing well-reasoned exchanges.

Certainly in the US this is true. Apparently China has over 100 EV firms now. So the Chinese government is doing a lot too. Of course a huge country can always do more than any single company can.

 

[dqd88]

That's precisely the point.
They want EV tech but they want their domestic companies to dominate it. If Tesla is 2-3 years ahead of their domestic companies, this would be the evil way to close the gap. Either that or other companies will send spies in when Tesla hires locals. The spies would reverse engineer the blueprints and plans. Don't tell me Chinese companies don't do stuff like this.

They don't need to, Tesla is already very transparent, open sourcing most of their patents. Tesla WANTS other companies to use their patents. Tesla's goal is to accelerate the transition to sustainable transport. The only way Tesla can do this is via a leverage affect. And that is what is happening. Tesla is crushing it so good that all OEM's are now having to do electric.

 

[TheTalkingMule]

Another transmission overheat fire at the beach in Jersey. Was just thinking.....imagine the outrage if this were a Tesla.

 

[neroden]

One clue is the number of employees per car. If you compare it to the large majors, I think Tesla has about twice as many employees per annual car production.

You have to include dealership and tier 1 supplier employees for an apples-to-apples comparison.