Long-Term Fundamentals of Tesla Motors (TSLA)

[austinEV]

But AustinEV: in the a-bit-more-distant future the following will likely happen:
1) Tesla will sell substantially more cars every year than they have done so far
2) the SC network gets "fully built out" at least in
places like the US and Western Europe
3) Electricity will be relatively speaking cheaper than it is today, especially when generated on-site with solar or off-set by solar someplace else.

1+2 means a lot less $$$ per car going towards investments in further expansion

3 means the money claimed as pre-payment covers even more kWh.

With this in mind $2000 per vehicle, or thereabouts, looks like a pretty sweet deal for Tesla but is at the same time still a good value proposition for the customer.

Also, these cars won't "live for ever" and for large taxi fleets just look at Schipol Airport: they have their own charging set up. I don't know the details but I believe it's a bunch of 22kW AC charging. There is no public SC there. I don't believe they have a SC and if they do I'm sure it's financed and being run separately from the general SC network. I believe there are some terms in the purchase agreement that states that "free for life Supercharging (prepaid)" is in fact limited to personal use (not commercial use) but don't hold me to this statement.

I will try to extract myself from this, but you are doing a great job of explaining why the current model of financing it is probably fine, which I agree with. My beef is that it takes a complex analysis to explain it to people. I dislike the financial complexity. I am not afraid that TM will go bankrupt over it, I am afraid that Mr. Market applies an unnecessary discount to the stock value because of indeterminate commitments like this.

Actually when I explain the SC network, i don't say its free. I say its free, then they look at me like I am crazy, then I say "well its more prepaid. There is like $2000 built into the price of the car that is for electricity. Since each charge is about $5 it is virtually impossible to spend that much so it works". So, that is a needlessly complicated message. I could just say don't worry about it its magic, but that is worse; people can't just accept something for nothing, they want to pull at the threads to find the scam.

I am probably in the minority in thinking of the liability and losing sleep over it. Y'all are sleeping well and don't understand and that is perfectly fine

 

[eloder]

Plus, this isn't going to go perfectly forever. Someone, eventually is going to buy a model III taxi fleet that drives 150 miles/day. Say $.12/kwh, 300 days a year that is ~1400$/year. That is an aggregious overuse of the shared pool. Will that not cause friction? TM will have to decide to look the other way and accept a larger-than-modelled expenditure or set obtrusive policies for over users that will sweep up innocent commuters who happen to drive crazy distances.

Even if this was plausible, I don't believe this to be a huge deal.

Cell phone carriers with unlimited data plans subsidize the top 5% of users with the bottom 95%. Broadband providers often do the same thing.

Warranties are also "free". In reality, it isn't though, because it's built into the price of the car. There will be people who receive more in warranty work than the entire worth of their car. Like supercharging, warranties are disproportionately paid out where some people TM essentially pay to be a customer through warranty work, while others will never see use of that warranty once.

This is true of many other industries and services--insurance, buffets, roads... I could go on.

I think the positive word of mouth and the power of the supercharging network are well worth the downsides, in its current model, and I think Musk would be making a huge mistake to separate it out and itemize it as a separate feature for the Model 3.

Also, I don't see why it's an issue even if TM goes bankrupt, or if the charging network has to be sold to another company. You're still capable of charging Tesla vehicles without the supercharger network. This sort of thing, also, happens all the time in the consumer world. An example would be a dealership who offers free car washes for life. If that dealership is bought out, they may no longer offer free car washes for life. It's the risk of being a consumer.

 

[brianman]

Y'all are sleeping well and don't understand and that is perfectly fine

No need to be insulting or draw incorrect conclusions. Not agreeing with you doesn't imply that the other person doesn't understand; it also says very little about how well others sleep.

 

[The Blue Owl]

No need to be insulting or draw incorrect conclusions. Not agreeing with you doesn't imply that the other person doesn't understand; it also says very little about how well others sleep.

To me it sounded like he was joking.

 

[ItsNotAboutTheMoney]

I will try to extract myself from this, but you are doing a great job of explaining why the current model of financing it is probably fine, which I agree with. My beef is that it takes a complex analysis to explain it to people. I dislike the financial complexity. I am not afraid that TM will go bankrupt over it, I am afraid that Mr. Market applies an unnecessary discount to the stock value because of indeterminate commitments like this.

Actually when I explain the SC network, i don't say its free. I say its free, then they look at me like I am crazy, then I say "well its more prepaid. There is like $2000 built into the price of the car that is for electricity. Since each charge is about $5 it is virtually impossible to spend that much so it works". So, that is a needlessly complicated message. I could just say don't worry about it its magic, but that is worse; people can't just accept something for nothing, they want to pull at the threads to find the scam.

I am probably in the minority in thinking of the liability and losing sleep over it. Y'all are sleeping well and don't understand and that is perfectly fine

I don't think it's that complicated to explain it. Just explain the two aspects separately
1) Up-front payment to help with the up-front cost of building the Superchargers, which is much greater than the electricity costs.
2) Benefits of up-front payment for average electricity use: better experience for car owner, better for Tesla, win-win lowering average cost

I think it's really important to communicate the first point.

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To me it sounded like he was joking.

I agree. "don't understand" = "don't understand why I'm so worried".

 

[30seconds]

Since the patents are open then any of the other manufacturers should be able to build thier own superchargers with the same connection. However sincw the software handshake may be different the parallel networks may not be interchangeable unless a common protocol is established

 

[30seconds]

In all fairness that's because in politics, especially American politics (I hope I'm not offending anyone too much), the candidates will say a lot of stuff during their campaigns and give the impression that they will act according to a certain ideology but once they're in office they are more or less just implementing the policies dictated by the special interests that got them in to office. Naturally the voters get disappointed. Wait 4 years, rinse and repeat. People never learn.

As the famous quote by Boss Tweed goes: "I don't care who does the electing, so long as I get to do the nominating."

William M. Tweed - Wikipedia, the free encyclopedia

(Oh boy this post is going on the politics quarantine thread)

Nope - here is the US the politicians are quite upfront about what they are going to vote for in the campaign and then follow through. The trick is to get enough voter groups together on issues that they don't really care about in order to trade support for issues that they do. Some sort of ideological framework helps, but it doesn't need to make much sense.

Just look up "Kansas budget" and the newly re-elected governor for example

 

[FANGO]

tl;dr: Communism bad. Invisible hand of commerce good.

You've lost me.

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I am probably in the minority in thinking of the liability and losing sleep over it. Y'all are sleeping well and don't understand and that is perfectly fine

I think we all understand that it's not a liability at all.

I also have never had a problem explaining it to anyone.

 

[stopcrazypp]

This same phenomenon is happening now within the company but bulls will ignore it and write it off as "easily affordable" or "its free advertising". But the casual investor isn't going to automatically understand that. Nice for company stockholders to shift the cost of that liability to drivers so it is off the books entirely.

I haven't really seen investors complaining about supercharger cost. It's pretty obvious superchargers are one of the top factors for Tesla's appeal (if you removed superchargers sales would not be where it is today). Also it's easily explained away by mentioning that there's a $2000 fee that covers it.

Plus in your hypothetical situation where Tesla ceases to sell any cars, at most Tesla will only have a liability of supporting the network for 10-20 years. Remember, Tesla only promises that the supercharger network is free for the life of the car, not free until the end of time.

 

[ggr]

Actually when I explain the SC network, i don't say its free. I say its free, then they look at me like I am crazy, then I say "well its more prepaid. There is like $2000 built into the price of the car that is for electricity. Since each charge is about $5 it is virtually impossible to spend that much so it works".

That's true, in a way. But the other way of looking at it is that it's much more than $5 per chargeup... because compare it to CHAdeMO for example, where you pay something like $12 per hour and would need to charge for 2 hours to get the same amount of energy, not to mention losing an extra 80 minutes of your life waiting for it. I think that, to me, each supercharging experience is worth much more like $20-$40, not just the $5 for the cost of the power. Maybe even more.

 

[pz1975]

I don't remember where the conversation about advertising was, but continues along from that.

I am at an ophthalmology conference in San Diego and the organizers of the conference are giving away a Tesla (bought by the conference organizers) as a grand prize to try and get more attendees to go to the exhibition floor where companies are peddling their goods. Each booth has been given 45 raffle tickets for the Tesla and it will be raffled off on Sunday. There is a Tesla parked prominently outside the exhibition hall.

Note that Tesla didn't pay one cent for this free advertising that will be seen by thousands of people attending the conference, most of whom could afford a Model S/X, and will likely generate some degree of buzz and hype about winning the car. It also cements the car for people seeing as the best car out there and unique/special.

I was very happy to see all of this and it's a nice stream of free advertising.

Another example is the Children's Hospital in Vancouver having a "dream lottery" where tickets are $100 each and the big prizes are homes and cars. The car this year is a Tesla and it is always mentioned in the ads.

 

[schonelucht]

$2500 / (kWh / $0.10) = 25 MWh prepaid

25 MWh * (mi / 300 Wh) = 83,333 miles

So you've prepaid 83,333 miles of supercharging. I'm quite confident that most buyers will not consume that much supercharger juice in 8 years or even for the life of the vehicle.

Everyone keeps parroting that $2500 (sometimes $2000) number. But it is simply not true. Yes, you have paid $2500 or whatever for that option, but Tesla only uses $500 of the revenue as a reserve for future supercharger access delivery (see SEC annual filing for 2014 page 68 : As of December 31, 2014, we had deferred $25.6 million related to access to our Supercharger network; divide by the number of outstanding cars at that time and you get to $500). The rest of the money is used to make Tesla's gross margin and currently that means it goes to servicing Tesla's huge capital expenditure. The money is gone. Read the filings. That whole $2500 is eaten up by the investment in the supercharger network which alone has already cost upwards of $120M (once again divide by the approx 50k cars sold end of last year).

So here we are with $500 which must cover not just electricity but also maintenance and lease (read the filing again, Tesla pays a lease for a number of supercharger locations; premium parking space in London, Amsterdam or Tokyo is not free). Let's be extremely generous and put maintenance costs for a supercharger stall over the lifetime of the model S at 10% of initial costs (or $12M). There goes slightly less than half of the reserve. Throw in some incidentals like the leases connection costs and we are looking at probably $250 of that reserve left for pure electricity costs. That comes down to 8000 miles of supercharging (note that electricity in the Netherlands and Germany is significantly more expensive and a quick google seems to confirm California also has high rates).

The reasons the numbers work is not because you prepaid a lot, but because many of your fellow Tesla owners don't use the supercharger network at all.

 

[Model 3]

The rest of the money is used to make Tesla's gross margin and currently that means it goes to servicing Tesla's huge capital expenditure. The money is gone.

So the build-out of the Supercharger network is free? No part of the initial $2000 from this "number of outstanding cars at that time" has been used to set up the initial run of SuperChargers build until December 31, 2014?

 

[uselesslogin]

Wow, I'm not sure if we are talking about BEV competition here. In any event there are two things I'm not sure have been said. First, I could swear one of the executives actually said recently that only the first 1 million cars get free supercharging but I can't find that. The second thing I think we fail to consider is that it is "free" for [the] "life" of the battery. When the owner needs a new battery then Tesla has an opportunity to collect the appropriate amount of revenue to pay for supercharger use. The car may last forever but the battery will not.

 

[Krugerrand]

Wow, I'm not sure if we are talking about BEV competition here. In any event there are two things I'm not sure have been said. First, I could swear one of the executives actually said recently that only the first 1 million cars get free supercharging but I can't find that. The second thing I think we fail to consider is that it is "free" for [the] "life" of the battery. When the owner needs a new battery then Tesla has an opportunity to collect the appropriate amount of revenue to pay for supercharger use. The car may last forever but the battery will not.

I've not heard either of those things said publicly by anyone from Tesla.

 

[pGo]

Wow, I'm not sure if we are talking about BEV competition here. In any event there are two things I'm not sure have been said. First, I could swear one of the executives actually said recently that only the first 1 million cars get free supercharging but I can't find that. The second thing I think we fail to consider is that it is "free" for [the] "life" of the battery. When the owner needs a new battery then Tesla has an opportunity to collect the appropriate amount of revenue to pay for supercharger use. The car may last forever but the battery will not.

JB talked about it in the recent future of transportation talk. Starts around 13:00.

The Future of Transportation - YouTube

 

[schonelucht]

So the build-out of the Supercharger network is free? No part of the initial $2000 from this "number of outstanding cars at that time" has been used to set up the initial run of SuperChargers build until December 31, 2014?

Maybe I wasn't clear (English is not my first or second language) so I would encourage you to read the filing for yourself. The money spend to build-out the supercharger network was more than than $2000 times the number of cars sold at the end of last year.

When the owner needs a new battery then Tesla has an opportunity to collect the appropriate amount of revenue to pay for supercharger use. The car may last forever but the battery will not.

This is at the earliest after 8 years though.

 

[Model 3]

Maybe I wasn't clear (English is not my first or second language) so I would encourage you to read the filing for yourself. The money spend to build-out the supercharger network was more than than $2000 times the number of cars sold at the end of last year.

English is not my first language either, and it may be contributing to that I do not make me sufficiently clear. But I try anyway :tongue: (bear with me please... :smile

From what you are saying, X is the number of cars sold at the end of last year:
$2000 * X = amount paid for build out and maintain the SuperCharger network, and pay for the electricity.
- $2000 * X < amount paid to *build* out the network alone up to this point.
- $500 * X = amount reserved to pay for the electricity in the future.
-------------
= $rest that is "used to make Tesla's gross margin and currently that means it goes to servicing Tesla's huge capital expenditure. The money is gone."

I'm not sure the exact number used for X, but I don't care. No matter what it is, this $rest that you say is used to servicing Tesla's huge capital expenditure is from what I can see a negative number...

In the future, when less money is spend on building out this network, I'm sure that the reserved amount to pay for future maintains and electricity will be more then $500 for each car sold that year. But in this initial period they have spend more on this, and therefor has reserved less money for this.

 

[ecarfan]

Tesla BEV Competition Developments

First, I could swear one of the executives actually said recently that only the first 1 million cars get free supercharging but I can't find that. The second thing I think we fail to consider is that it is "free" for [the] "life" of the battery. When the owner needs a new battery then Tesla has an opportunity to collect the appropriate amount of revenue to pay for supercharger use. The car may last forever but the battery will not.

What JB Strauble said was that the current prepaid Supercharger system works well for "the first million cars or so" and after that Tesla MAY CONSIDER "phasing it out" and go to a pay per charge system.
So he did not definitely say that "only the first million cars" will use the pre paid charging model, he only said after Tesla has built around a million cars they might move away from that system. So any possible change is years away.
Also, I have only heard from Tesla that the current "free Supercharging" system is for the life of the "car", it is not tied to a specific battery.

 

[Larry Chanin]

I too like that Tesla has offered their charging standard to others. I would absolutely love to see others take them up on it; but Tesla definitely has terms that have to be met, several of which are not public (minor example: branding, which is currently all Tesla). And Tesla is hard to work with.

Since the patents are open then any of the other manufacturers should be able to build thier own superchargers with the same connection. However sincw the software handshake may be different the parallel networks may not be interchangeable unless a common protocol is established

My apologies I should have been clearer. When I said that Tesla had "opened its patents" I didn't mean that literally. They still have their patents and the right to enforce them, its just that they would enforce them less vigorously provided they weren't being abused. As Chad correctly points out there are a number of conditions that Tesla will invoke prior to permitting another manufacturer to use their specifications. As we know a patent isn't a cookbook instructing the reader how to build their product. Those manufacturing instructions would have to be provided by Tesla to facilitate adoption. In other words, I doubt another manufacturer could build their own version of a Supercharger without Tesla's permission and assistance without facing legal action.

Larry

Edit: A more likely approach is that Tesla would sell the connector and firmware to other EV manufacturers and charge a fee for access to the Supercharger network. That is, other manufacturers wouldn't have to build anything on their own to benefit from the Supercharger network.