I'm not related to JP, but I'm shorting TSLA...

[tftf]

If trends hold, batteries will simply continue their 7% per year natural price decline. Add that to the 30% promised by the gigafactory and you are talking a 60% reduction by 2018. What would that do for Tesla's profitability and pricing flexibility?

My understanding was the 30-40% numbers already are the total cost reduction targets for the gigafactory. I can't repeat my articles in detail here but as a summary I fail to see why large (mostly Asian) competitors couldn't match these price reductions over time, many of them have decades of experience in battery manufacturing and extensive supply chain ties (Asian conglomerates with direct stakes in mining/raw material logistics).

I see Asian companies (many of them new entrants or existing battery suppliers) dominate the EV mass-market segment over time.

On the R&D side of things, many smart people worldwide are working on better battery tech all the time. The major tech disruptions are still to come (nanowires, Li-Air, Li-Sulfur, supercapacitors...).

Market and technology leadership may change many times until EVs as a category mature within 1-2 decades.

Anyway, that's my summary.

 

[Zythryn]

My understanding was the 30-40% numbers already are the total cost reduction targets for the gigafactory. I can't repeat my articles in detail here but as a summary I fail to see why large (mostly Asian) competitors couldn't match these price reductions over time, many of them have decades of experience in battery manufacturing and extensive supply chain ties (Asian conglomerates with direct stakes in mining/raw material logistics).

I see Asian companies (many of them new entrants or existing battery suppliers) dominate the EV mass-market segment over time.

On the R&D side of things, many smart people worldwide are working on better battery tech all the time. The major tech disruptions are still to come (nanowires, Li-Air, Li-Sulfur, supercapacitors...).

Market and technology leadership may change many times until EVs as a category mature within 1-2 decades.

Anyway, that's my summary.

You go ahead and invest based on ifs and maybes.
I'll invest in someone that is actually doing something.

 

[30seconds]

My understanding was the 30-40% numbers already are the total cost reduction targets for the gigafactory. I can't repeat my articles in detail here but as a summary I fail to see why large (mostly Asian) competitors couldn't match these price reductions over time, many of them have decades of experience in battery manufacturing and extensive supply chain ties (Asian conglomerates with direct stakes in mining/raw material logistics).

I see Asian companies (many of them new entrants or existing battery suppliers) dominate the EV mass-market segment over time.

On the R&D side of things, many smart people worldwide are working on better battery tech all the time. The major tech disruptions are still to come (nanowires, Li-Air, Li-Sulfur, supercapacitors...).

Market and technology leadership may change many times until EVs as a category mature within 1-2 decades.

Anyway, that's my summary.

I agree that other companies should be able to match the gigafactory in terms of cost once 1. They commit billions to the scale of the factory 2. Locate the factory so that inputs and outputs are cheap to transport and 3. Locate and build the factory so it can rely on the long term cost advantage of wind/ solar or other inexpensive source.

And of course get an agreement in place with a few customers to buy 80%+ of the output before the factory is up and running

its not like it can't be done, but in what timeframe is it likely?

 

[kenliles]

My understanding was the 30-40% numbers already are the total cost reduction targets for the gigafactory. I can't repeat my articles in detail here but as a summary I fail to see why large (mostly Asian) competitors couldn't match these price reductions over time, many of them have decades of experience in battery manufacturing and extensive supply chain ties (Asian conglomerates with direct stakes in mining/raw material logistics).

I see Asian companies (many of them new entrants or existing battery suppliers) dominate the EV mass-market segment over time.

On the R&D side of things, many smart people worldwide are working on better battery tech all the time. The major tech disruptions are still to come (nanowires, Li-Air, Li-Sulfur, supercapacitors...).

Market and technology leadership may change many times until EVs as a category mature within 1-2 decades.

Anyway, that's my summary.

Are any of them doubling the worlds supply with a single plant that produces raw-to-pack using the latest tech? If so, then you have a good point. Until that's announced it's speculative vs Tesla's now 1/2 cash in hand to accomplish a specific plan. Agree major disruptions in chemistry level still to come (and S Capacitors maybe more than any as Elon might know given his graduate work). I think given the integration of battery pack (for cars) design success coupled with mfg of same (starting at cell level), I have trouble finding another company to form a superior investment confidence profile for my money- always looking though

 

[tftf]

For example, in the CNBC video below the fundamentals guest seems to mix up TSLA gross margin targets (25%) with net or operating margins from German competitors like BMW or Daimler:


This chart says Tesla is cheap | Talking Numbers - Yahoo Finance

He's talking about different margins which of course is mixing apples and oranges (but I agree with some of the other points he makes).
So in the same way I called out a long analyst in the past (Andrea James) I have no trouble saying the same for analysts on the short side.

And the same thing happens on the long side again, see this recent SA article:

Highest Operating Margins in the Industry
According to the last earnings report Tesla achieved an operating margin of 25% and the company guided to 28% operating margins for 2014. In the last investor presentation, the company stated that Model X sales are to begin in Q4 of 2014.

...

30% operating margins would be 3x higher than that of Toyota and so it seems clear that Tesla deserves a premium to Toyota's valuation/car.

etc.


Tesla Motors Inc (TSLA) news: Tesla: An Investment Based On Optionality And The Genius Of Elon Musk - Seeking Alpha

I wrote in a comment:

One can't use operating margins for BMW, GM, VW and Toyota and at the same time use gross margins for TSLA for comparisons.

Can the author please clarify?

PS: Porsche had/has the sector record in the car industry with up to 50+% gross margins and 18-25% operating margins. These numbers are very hard to beat.

Before that, I waited for 48 hours (errors can happen; I thought it would be corrected quickly after publication) and then left the comment above since there was no change.

What's even more interesting: There are dozens of comments congratulating this bullish article (I guess some from professional investors) but no comment pointing out the error. This is not a minor mistake or typo, the wrong definition and the wrong numbers are used several times in the article.

Similar for many sell-side analyst reports (and the possible affiliations of the company preparing these reports), most people glance at the new price target without looking or verifying the assumptions/estimates these price targets are based on.

I didn't bring this up to pan people who make mistakes (everyone does) but to show the bias by not checking the facts and numbers (applies to both sides).

I continue to believe there is a lot of exuberance in parts of the stock market (especially tech sector) and TSLA is among those stocks. As I pointed out many times, the FED exit strategy will pose many risks and this bull market (since March 2009 in US stocks) could soon be over. Yellen can create an encore in 2014 but she can't do this forever (or the world will get the Japanese malaise).

 

[Robert.Boston]

@tftf: I too am worried about how long this bull market will run; while I think the Fed can pull off the proverbial "soft landing," it's not without risk. There are far more challenges on the fiscal side of Washington, however, than on the monetary side. But that's a discussion for another forum...

In my view, however, Tesla's growth and success is largely unlinked from the overall market. Tesla's target customers are those least affected by risks of long-term unemployment, etc. The vast majority of the risk in TSLA is the execution of the company, and there I have a high degree of confidence in management. And that, in the end, is really why I stay bullish on Tesla.

 

[tftf]

In my view, however, Tesla's growth and success is largely unlinked from the overall market. Tesla's target customers are those least affected by risks of long-term unemployment, etc.

I agree with you largely about Tesla the company (but not TSLA the stock) in this scenario. I think for TSLA the company a change in incentives in key countries such as Norway could have a more direct impact on revenues/units sold (the tiny population of Norway buys about 50% of all electric cars in Europe at the moment).

But I think TSLA the stock (along with all cyclical stocks and tech stocks) could be hit hard in case there's a more concrete FED exit or a new economic downturn further down the road - even if they hit their estimates and unit sales (same even happened with many blue-chip unscathed in 2008 in terms of margins/revenue, AAPL is a good example, their stock took a nosedive along with the market).

 

[Robert.Boston]

I disagree that Tesla is a cyclical stock. Take a look at how luxury brands fared during the last recession -- Tiffany, for example, did extremely well.

 

[tftf]

I disagree that Tesla is a cyclical stock. Take a look at how luxury brands fared during the last recession -- Tiffany, for example, did extremely well.

I should have been more specific: I largely agree with you until "day X"

Where "day X" is the future date TSLA starts selling the Gen III car at the promised $30-35k base price. I think this will be a different client demographic (and I continue to think TSLA could be better off/lower risks as a Porsche equivalent of the EV world and never do a Gen III and maybe even a lower-priced Gen IV after that - but that's beating a dead horse; anyone interested can see the older comments).

 

[Discoducky]

Everything else being equal I'm investing based on the gigafactory reducing the price Tesla pays all-up for completed cells from supplier(S) currently by at least 30%. The other reduction in costs associated with cells remains. Tesla is, in fact, greatly accelerating their reductions. Whether other companies benefit is really up to them. I expect they will be left behind until it is too late. Just like supercharging.

 

[Krugerrand]

...but that's beating a dead horse...

And yet you just keep talking about it and several other irrelevant horses.

 

[tftf]

Everything else being equal I'm investing based on the gigafactory reducing the price Tesla pays all-up for completed cells from supplier(S) currently by at least 30%. The other reduction in costs associated with cells remains..

I can't respond to that other than my previous answer above about future competitors. TSLA can

pro
+ integrate even more, add more recycling (*)
+ add additional economies of scale due to size of factory (**)
+ lower input energy costs with wind etc.

con
- most wages are lower (ex-Japan) in Asia than in the US (*)
- large Asian conglomerates (Korea/Japan) often have direct raw material access to mining and logistics within their groups (lithium etc.)
- stricter environmental laws/higher legal costs in the US

Along with changing battery technology until 2020 (VW for example talks about new battery tech: Volkswagen Development Chief: Expect 50% More Electric Range by 2016 - 300% More by 2020 | Inside EVs ) I honestly don't know how the 30-40% cost reductions of the giga factory will net out agains the battery competition - also because they will add newer battery plants soon.

_______
* I assume most battery competitors will be located in Asia, but some may operate additional plants near EV manufacturing bases in Europa/US like Nissan did.

** Samsung SDI and LG Chem are both talking about two new EV battery plants in China (SDI already greenlighted the project, LG is still planning it: http://www.reuters.com/article/2014/03/02/us-lg-china-idUSBREA2100720140302 ). Again I honestly can't say how big of an impact the size has on lower costs, i.e. the additional economies of scale per kWh for TSLA's larger plant in relation to all the other pros and cons listed above. Battery packs are heavy, so shipping costs play a role too.

- - - Updated - - -

And yet you just keep talking about it and several other irrelevant horses.

Was that needed ? Did you read my post above regarding gross margins vs operating margins, is that also a dead horse or irrelevant ?

I really have no time for personal attacks. Bye.

 

[SteveG3]

I should have been more specific: I largely agree with you until "day X"

Where "day X" is the future date TSLA starts selling the Gen III car at the promised $30-35k base price. I think this will be a different client demographic (and I continue to think TSLA could be better off/lower risks as a Porsche equivalent of the EV world and never do a Gen III and maybe even a lower-priced Gen IV after that - but that's beating a dead horse; anyone interested can see the older comments).

TFTF, I think it would take a global economic crisis as bad or worse than the one in 2008 for Tesla to have substantial risk of falling short of 130K sales each in the U.S., E.U., and Asia for the Gen III due to macro issues.

1. of course, it's possible we might see such a crisis... you have to ask yourself how probable it is... probable enough that you take all your money out of the stock market and earn 1%?

2. even with another event like 2008, I'd say substantial risk to targeted volumes... but not necessarily failing to reach targeted volumes. I sense that if all vehicle sales were cut in half, as happened roughly in 2008, I'd say perhaps we'd see a fall to 100K Gen III in each U.S., E.U., and Asia, Model S/X down to 70K globally, so 370K vehicles total globally... pretty much what the bullish analysts are projecting anyway.

3. that said, everything I wrote above is based on a key future event, that, of course, is not "certain"... that is, Tesla executing and delivering a Gen III range with suggested specs, $35K, 200+ miles range, BMW series level performance. I have very high confidence in this, and so I don't particular worry about the global economy. could it get so bad that Tesla's sales fall well below the numbers I suggested in point 2? sure, that's possible... but if things got to that point I think the value of TSLA would be among the smallest of my concerns (think Great Depression II... to be clear, I see as very improbable).

fwiw, going back to point 1, TFTF, do you think we are heading to something as bad or worse than 2008? if so, do you think it's over 50% likely in a year, 3 years, 5 years? have you taken all of your money out of the stock market? if you don't mind sharing, where do you invest your money?

- - - Updated - - -

Along with changing battery technology until 2020 (VW for example talks about new battery tech: Volkswagen Development Chief: Expect 50% More Electric Range by 2016 - 300% More by 2020 | Inside EVs ) I honestly don't know how the 30-40% cost reductions of the giga factory will net out agains the battery competition.



_______
* I assume most battery competitors will be located in Asia, but some may operate additional plants near EV manufacturing bases in Europa/US like Nissan did.

- - - Updated - - -



Was that needed ? Did you read my post above regarding gross margins vs operating margins, is that also a dead horse or irrelevant ?

I really have no time for personal attacks. Bye.

I read the article... I don't see anything that suggests any competitive improvement compared to Tesla in terms of cost. All it suggests is that they are looking at building a BEV with 120 miles range circa 2016, and 320 miles range circa 2020. again, no indication whatsoever as to what reductions in cost they see themselves achieving.

 

[tftf]

Steve, here's maybe a better link from another source:

That's according to Dr Heinz-Jakob Neusser, VW board member responsible for development. Speaking at the Geneva motor show, he said that the company has tested lithium-ion batteries with its existing cell supplier (Sanyo) with between 24 and 28kWh and also up to 37kWh, but “an 80kWh unit is under development using our own technology. It would provide between three and four times the battery power in a given package.”

Neusser refuses to name the battery chemistry, but doesn’t deny it is a lithium-air unit, which are capable of delivering huge amounts of power, but are in the very early stages of development.

As to how far a plug-in hybrid or pure battery car could travel in electric mode with such a battery, Neusser says that depends on what the customer wants. He suggests that as a second car, most customers will settle for about 200km (124 miles) of electric range, but as the family’s main transport a battery would have to provide a much greater range.

Neusser also confirmed that VW’s fuel cell research has switched to a conventional water/hydrogen cell proton exchange membrane cell rather than the phosphoric acid high temperature cell research the company was engaged in some years ago.

The battery tech that could change electric cars - Telegraph

I agree, these are just plans. We will have to see what kind of cost reductions this will bring. VW for example just assembled 1300-2000 people in a central new campus ("Elektrocampus" *) at its HQ working on EVs and related technologies.

I see a few car companies investing a lot in EVs (especially Nissan-Renault, BMW, VW and two unnamed Asian companies). That's my summary for the competition (have no interest in posting further because of unfortunate continued personal attacks from a few people).

______
* Viel Beton für das „elektrifizierte Herz“ von VW | VW - Das Werk | Wolfsburger Nachrichten (under construction report in German from 2012)

 

[SteveG3]

@tftf, this new article you are offering as a better source is implying the new technology would be metal air.

if VW is hinting about metal air, as I'm sure you are well aware, Tesla is exploring a lithium-ion/metal air hybrid battery as well (the metal air basically serving as a range extender). I'm also sure you are aware of the impracticalities of using metal air as a stand alone battery rather than as a range extender.

if they are hinting about something else, and if the suggestion is a BEV with quadruple the range at the cost of a current 80 mile range... I don't think it's Tesla with a problem, I think the entire ICE industry would melt as fast as production capability for such a hypothetical $30K 320 mile range EV could ramp up.

... just another stab at your global economic concerns... do you have any specific probabilities you've estimated for such a major crisis event occurring (as bad or worse than '08?)? specific probability over what specific time frame? do you have any specific strategy you've deployed based on such a scenario; that is, are you completely out of stocks now? have you found a safe haven with better returns than money markets/bonds?

 

[Krugerrand]

con
- most wages are lower (ex-Japan) in Asia than in the US (*)

Wages vary greatly in the United States and what the wages would be at the GigaFactory will likely be affected in part to the state chosen. There's plenty of evidence that suggests that Tesla doesn't pay top wage. I don't think one executive makes nearly as much in salary as they would most anywhere else, paid instead with company shares and the chance to work at a company trying to revolutionize an industry or two, and change the world.

Additionally, happy employees are more productive employees, so giving an employee a few bucks more so that he can more easily put a roof over his/her head and feed his/her family, and providing a work environment that encourages advancements, thusly shows a paradox that nullifies what you perceive to be a con.

- large Asian conglomerates (Korea/Japan) often have direct raw material access to mining and logistics within their groups (lithium etc.)

From what I understand looking at the GigaFactory pdf file, Tesla plans to be directly linked to their raw materials. That's another con off your list.

- stricter environmental laws/higher legal costs in the US

This has always been the cost of doing big business and yet...there's Tesla successfully producing cars in California. Seems to me, where there's a will, there's a way.

I honestly don't know how the 30-40% cost reductions of the giga factory will net out agains the battery competition - also because they will add newer battery plants soon.

I think you do, but it doesn't fit your thesis.

Was that needed ?

It's a matter of opinion if stating the obvious is needed or not.

Did you read my post above regarding gross margins vs operating margins, is that also a dead horse or irrelevant ?

I've read every comment you've made here and on SA. You've pulverized that poor dead horse on most matters, such as the $15-$20B needed to build the GigaFactory and how Tesla wasn't going to be able to get that kind of money together, etc... You were on that horse for weeks and when it became clear you were wrong, you tried to say it was the longs who said the factory couldn't be done and that you were the one saying it could.

But back to your GM vs OM - so both the bears and the bulls get their facts mixed up, distorted, flipped, or totally wrong sometimes. That required you to come here, to a predominantly Tesla fan base, to specifically tell us that a bull author got a fact wrong? Okay, thanks for letting us know. We'll likely all want to change our TSLA investment approach now. You've saved us all from ourselves.

I really have no time for personal attacks.

It wasn't a personal attack, but I apologize for calling a spade, a spade. I've always had a problem embracing my inner passive aggressiveness, but I'm working on it.

Bye.

Ciao.

 

[tftf]

I've read every comment you've made here and on SA. You've pulverized that poor dead horse on most matters, such as the $15-$20B needed to build the GigaFactory and how Tesla wasn't going to be able to get that kind of money together, etc... You were on that horse for weeks and when it became clear you were wrong, you tried to say it was the longs who said the factory couldn't be done and that you were the one saying it could.

You made me come back to clear this because you have misquoted me. I always wrote $5-10 billion in total investments (not just TSLA's part, the whole bill) and my number included the Gen III tooling and development for up to 500k cars/year back in 2013:

For The Record: Tesla Will Likely Need 5 To 10 Billion USD For Its Gen III Car And Battery Plant

(can't link this but apparently links to 99%-probability fraudulent projects like the Quant car are allowed...)

I made these estimates when many people talked about 1-2 billion for the battery factory and most analysts didn't mention the factory cap ex at all. I also never wrote they could never bring the money together.

Why did you misquote me?

As we now know, TSLA (just the factory, without the Gen III car) estimates the total gigafactory costs at $4-5 billion. If you add the Gen III car and cost overruns that often happen in such huge projects my estimate was not that far off. I could well see the total costs (including then Gen III car cap ex) of the factory in the $7 billion range when it's all said and done - so right in the middle of my original estimate.

That required you to come here, to a predominantly Tesla fan base, to specifically tell us that a bull author got a fact wrong?

You didn't read my comment to the end then: I wrote errors happen, no issue with that. What is interesting was dozens of positive comments congratulating the author with noone mentioning the error (which results in billions/year in margin differences). That's confirmation bias.

But from now on I won't disturb this confirmation bias any longer. Bye.


PS: Edit: SteveG3, I will gladly answer your unanswered questions via PM later, thanks for understanding.

 

[neroden]

TFTF, I think it would take a global economic crisis as bad or worse than the one in 2008 for Tesla to have substantial risk of falling short of 130K sales each in the U.S., E.U., and Asia for the Gen III due to macro issues.

1. of course, it's possible we might see such a crisis... you have to ask yourself how probable it is... probable enough that you take all your money out of the stock market and earn 1%?

Extremely likely IMO. But there are still companies which will weather such a crisis; some investors made a lot of money during the Great Depression. Actually, I think there's a secular growth story for electric cars, which should leave them pulling ahead in sales even during busts.

2. even with another event like 2008, I'd say substantial risk to targeted volumes... but not necessarily failing to reach targeted volumes. I sense that if all vehicle sales were cut in half, as happened roughly in 2008, I'd say perhaps we'd see a fall to 100K Gen III in each U.S., E.U., and Asia, Model S/X down to 70K globally, so 370K vehicles total globally... pretty much what the bullish analysts are projecting anyway.

Bingo.

3. that said, everything I wrote above is based on a key future event, that, of course, is not "certain"... that is, Tesla executing and delivering a Gen III range with suggested specs, $35K, 200+ miles range, BMW series level performance. I have very high confidence in this,

I don't have such high confidence, but I also don't think Tesla actually needs to hit that target. Currently the S85 starts at $81,070 (not counting tax credits). If Tesla produces a Gen III with a similar range which actually starts at $50K I think it'll sell like gangbusters -- even though that's a huge miss on the price target.

 

[SteveG3]

I don't have such high confidence, but I also don't think Tesla actually needs to hit that target. Currently the S85 starts at $81,070 (not counting tax credits). If Tesla produces a Gen III with a similar range which actually starts at $50K I think it'll sell like gangbusters -- even though that's a huge miss on the price target.

neroden, I actually basically agree with you on this. to clarify, the execution they need is for the Gen III to be delivered in keeping with what Tesla has come mean... class leading product, including several desirable elements that only an EV executed as Tesla has can offer. I agree that if they have to charge more than $35K it wont matter... though, to fine tune a bit, if we are in a major economic collapse, I suspect $50K might reduce demand below supply... $40-45K I don't think will matter.

and thanks for the reply... it seems tftf prefers to look away from discussion that reveals questionable assumptions in his thesis, ironic that he mentions confirmation bias to Krugerrand.

 

[Krugerrand]

You made me come back

What caliber of gun was it?

No worries. When I come across your comments I'll keep track of them and put together a compilation.

You didn't read my comment to the end then: I wrote errors happen, no issue with that. What is interesting was dozens of positive comments congratulating the author with noone mentioning the error (which results in billions/year in margin differences). That's confirmation bias.

Yes, I did read your comment to the end and I note you spent the majority of the words supporting your thesis (which does not coincide with the majority here, and you know it) and then decided to mention as an afterthought that the 'other side' has also made errors. Did I miss the part where we asked for an example of confirmation bias? Or that we were unaware that it was occurring somewhere, out there, on the WWW? Did I miss the part where you then went on to site an equally blatant error made by the 'other side' and the slew of comments that showed that opposite confirmation bias? Or did you just focus on that one error, by that one author, presenting a highly favorable slant to your side?

Nobody here had anything to do with the comments you've taken exception to on SA. So again, you've come here with this, why? Do you wish us to go over to SA and comment on your behalf?

But from now on I won't disturb this confirmation bias any longer. Bye.

Is this where I ask, 'why the personal attack' (via a passive aggressive approach)? :wink:

I understand you don't think Tesla will succeed or can succeed to the extent they are aiming for going forward, and for a multitude of reasons you've fully explained. You are not on that island alone, sir, but you're confused if you think this place is your island. The dissection you've done is no more complete than the dissection done by many others here. But as I demonstrated with your con list, people can arrive at different conclusions based on how they interpret the data, it doesn't make them biased or you not biased. As TippyDog and Paulo like to flog the 'demand has peaked' horse, others have come to an entirely different conclusion.

Reasons why the SA longs didn't point out that author's flaw, in no particular order; 1)because they didn't feel it was relevant, 2)because they didn't catch it, 3)because they are biased. I certainly know which one you've picked.