Long-Term Fundamentals of Tesla Motors (TSLA)

[Cattledog]

Thanks, chickesevil! 700k would be awesome. I've got to crank the max growth rate up to 67% to hit 721k! You can imagine how chaotic the planning process must be. They've got to coordinate everything around an ambitious schedule like that, build in lots of contingencies and hope that 5000 little peices all show up on time.

The cool thing about models like this one is it can set a lot of little targets to coordinate activity around. Basically it's a flight plan. Once you have a trajectory like this, you can back into things like building out Gigafactories and auto facories at just the right time. You can negotiate with suppliers and hire staff at the right time. You can work out cash flow and back into any needed financing. I think Tesla is focused on self-financing through free cash flow. That's the rocket juice right there. When the market figures out that they've got enough juice to go all the way, the stock price will go way up. My thought is the way analysts should approach Tesla is to model cash flow well enough that they can see multiple self-financing paths to Tesla's objectives. It's not good enough to opinine that Tesla is going to need to raise lots of capital. They should know Tesla well enough to see how it is posible and trust that management sees that way and a couple smarter ways too.

So it's tough doing this work on the outside because you don't really know what anything costs. So my goal in modeling is plausibility. Can I see a path that is reasonable? If I worked for Tesla I could optimize it, but on the outside I must use a lot of imagination. At any rate, I worked out a cash flow model for the whole series of Gigafactories. One new Gigafactory per year gets Tesla to enough battery packs to energize half the cars sold in 2030. I'm not comfortable releasing this model, but I believe the have enough cash on hand and commitments for partners to pull off the whole damn thing. My next steps are to model the EV disruption in in the auto industry. This goes well beyond the spreadsheet I just shared to look at how quickly the industry can be disrupted and what kind of market share Tesla can walk away with. Basically that 10% market share is not something to be assumed, it is to be determined by how quickly Tesla disrupts. The faster they move the more share they can grab. So as I get a grip on how to model that, then I can back into how much Gigafactory they will need to do it. To recap, I've modeled Gigafactory cash flow to supply half the autos in 2030. That may be more batteries than are needed for major disruption. If I know the flight plan, I can work out the right amount of fuel. I guess you could say I'm trying to reverse engineer Tesla.

One interesting thing to discover is what Tesla's brand loyalty is/will be compared to other car manufacturers. Right now the numbers are small, but imagine if they are still the solo, or dominant, EV producer in 10 years. They'll have a high 90%+ recapture rate when people are trading in old S, X, and 3 cars - much higher than BMW or Porsche or Mercedes, who are competing against each other and Lexus, Infiniti, Acura, etc. This is essentially because 90%+ of all people who drive electric cars swear they will NEVER go back to an ICE. I'd be in that camp. This gives them a much, much higher probability of capturing any market share they target (up to a point) than if they were simply a new start-up car company with cool products. Buckle up.

 

[chickensevil]

One interesting thing to discover is what Tesla's brand loyalty is/will be compared to other car manufacturers. Right now the numbers are small, but imagine if they are still the solo, or dominant, EV producer in 10 years. They'll have a high 90%+ recapture rate when people are trading in old S, X, and 3 cars - much higher than BMW or Porsche or Mercedes, who are competing against each other and Lexus, Infiniti, Acura, etc. This is essentially because 90%+ of all people who drive electric cars swear they will NEVER go back to an ICE. I'd be in that camp. This gives them a much, much higher probability of capturing any market share they target (up to a point) than if they were simply a new start-up car company with cool products. Buckle up.

It isn't just brand loyalty because of EV's but brand loyalty to Tesla itself. We are quickly becoming a group of dedicated followers akin to Apple's followers. I have heard a lot of people basically say they would never buy from another brand again. That is saying a lot for cars because normally you don't have a large brand loyalty group when it comes to cars. Sure there are some, but it is a small group comparatively to other product markets.

How many people on this forum or in public could you ask if they would ever consider buying from another manufacturer even assuming they end up making a comparable car to the Tesla? I bet most of them would respond positively toward being loyal to Tesla, and that says a lot. The 99% consumer reports is a sign of that as well. Even myself, when I hear people talking about other cars and the cool things that they like about them, I can't help but come back to thinking about Tesla and how it isn't something I would ever consider doing. I have to really fight myself back on the subject just to not irritate people to death haha! And I have never been this brand loyal to... well... anything... before.

 

[hcsharp]

jhm, I followed the math OK in your tutorial while wondering the whole time how do we model the cash requirements into our TSLA "flight." I haven't read DaveT's article on how Tesla could self-fund each phase of this mind-boggling growth, but I have to admit it seems impossible at first glance. I wonder what b rate he assumed. Perhaps he expected some debt which would make sense and add value if not too high.

 

[austinEV]

It isn't just brand loyalty because of EV's but brand loyalty to Tesla itself. We are quickly becoming a group of dedicated followers akin to Apple's followers. I have heard a lot of people basically say they would never buy from another brand again. That is saying a lot for cars because normally you don't have a large brand loyalty group when it comes to cars. Sure there are some, but it is a small group comparatively to other product markets.

How many people on this forum or in public could you ask if they would ever consider buying from another manufacturer even assuming they end up making a comparable car to the Tesla? I bet most of them would respond positively toward being loyal to Tesla, and that says a lot. The 99% consumer reports is a sign of that as well. Even myself, when I hear people talking about other cars and the cool things that they like about them, I can't help but come back to thinking about Tesla and how it isn't something I would ever consider doing. I have to really fight myself back on the subject just to not irritate people to death haha! And I have never been this brand loyal to... well... anything... before.

If Tesla had bought the Nummi plant and started making ICE cars, think Model S' with good engines (cars would be cheaper, 50-60k?) but with the big touch screen, over the air updates, direct sales model, white glove service etc, ICE-Tesla would still be my favorite new car company. There is plenty to not like about other car brands.

 

[TSLAopt]

did anyone else see this excerpt from yesterday's interview yet and worry that not only (a) that this is a real serious threat but more importantly relevant to this TSLA investing thread that (b)Elon is growing so worried about it that he feels the need to take a leave from Tesla and SpaceX to develop a firm/group to solve this threat to humanity...he seems to feel now that this threat is more immediate than global warming or getting us onto Mars. Therefore, I could see some announcement coming of him officially taking a leave from his current companies to lead a crusade to prevent dangerous AI from developing and wiping humanity out.

Elon Musk: a Machine Tasked with Getting Rid of Spam Could End Humanity | Vanity Fair

Please watch the above and then please tell me that my worry for TSLA is irrational and that Elon will stay the course. It would be a significant stock price drop that would result I suspect (10-30%) but then we'd have a new base from there as long as the company stayed on track without Elon playing much of a role.

 

[FluxCap]

did anyone else see this excerpt from yesterday's interview yet and worry that not only (a) that this is a real serious threat but more importantly relevant to this TSLA investing thread that (b)Elon is growing so worried about it that he feels the need to take a leave from Tesla and SpaceX to develop a firm/group to solve this threat to humanity...he seems to feel now that this threat is more immediate than global warming or getting us onto Mars. Therefore, I could see some announcement coming of him officially taking a leave from his current companies to lead a crusade to prevent dangerous AI from developing and wiping humanity out.

Elon Musk: a Machine Tasked with Getting Rid of Spam Could End Humanity | Vanity Fair

Please watch the above and then please tell me that my worry for TSLA is irrational and that Elon will stay the course. It would be a significant stock price drop that would result I suspect (10-30%) but then we'd have a new base from there as long as the company stayed on track without Elon playing much of a role.

Elon is a well-read sci-fi dreamer and philosopher, like many of us (myself included). There are a million rants a day from geeks like me on Reddit that have little bearing on actual realities of the capabilities of a machine to inflict autonomous damage on humans in the near future without having been purposefully designed by humans to do that.

The difference is Elon is a billionaire genius with several world-changing companies under his belt, so when he pontificates the world listens.

While I am inclined to give him wide leeway on theories, I don't think even he feels Skynet/The Matrix is imminent. I do feel he thinks that we should practice coding and engineering with more safeguards in place to prevent catastrophe, given the pace of AI progress.

I don't think he is going to quit his "day jobs" for this just yet, no. Plus, he has said time and again that he is committed to remain with the company through volume production of the third-gen car. His incentive/compensation package is also literally tied to performance of this exact thing. So no I don't think we have to worry about that. Plus, he loves Tesla.

 

[DaveT]

did anyone else see this excerpt from yesterday's interview yet and worry that not only (a) that this is a real serious threat but more importantly relevant to this TSLA investing thread that (b)Elon is growing so worried about it that he feels the need to take a leave from Tesla and SpaceX to develop a firm/group to solve this threat to humanity...he seems to feel now that this threat is more immediate than global warming or getting us onto Mars. Therefore, I could see some announcement coming of him officially taking a leave from his current companies to lead a crusade to prevent dangerous AI from developing and wiping humanity out.

Elon Musk: a Machine Tasked with Getting Rid of Spam Could End Humanity | Vanity Fair

Please watch the above and then please tell me that my worry for TSLA is irrational and that Elon will stay the course. It would be a significant stock price drop that would result I suspect (10-30%) but then we'd have a new base from there as long as the company stayed on track without Elon playing much of a role.

It's definitely more of a long-term concern for Elon. And so far, he's played a role by "investing" in some AI companies for the purpose of making sure they're kept on track. I don't think you have anything to be worried about regarding Elon stepping down from Tesla/SpaceX to focus on the AI threat.

 

[TSLAopt]

Elon is a well-read sci-fi dreamer and philosopher, like many of us (myself included). There are a million rants a day from geeks like me on Reddit that have little bearing on actual realities of the capabilities of a machine to inflict autonomous damage on humans in the near future without having been purposefully designed by humans to do that.

The difference is Elon is a billionaire genius with several world-changing companies under his belt, so when he pontificates the world listens.

While I am inclined to give him wide leeway on theories, I don't think even he feels Skynet/The Matrix is imminent. I do feel he thinks that we should practice coding and engineering with more safeguards in place to prevent catastrophe, given the pace of AI progress.

I don't think he is going to quit his "day jobs" for this just yet, no. Plus, he has said time and again that he is committed to remain with the company through volume production of the third-gen car. His incentive/compensation package is also literally tied to performance of this exact thing. So no I don't think we have to worry about that. Plus, he loves Tesla.

i hope you're right and that he's not getting to too obsessed with AI wiping out humanity, unless it is a real threat I guess and our best chance of removing that threat is to have someone like Elon lead a movement to avoid that (best way to avoid it would probably be the first to develop the superior ASI that has a utility function to keep a watchful eye on all other AI developments to make sure none of them go the wrong direction into becoming a threat to humans)

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It's definitely more of a long-term concern for Elon. And so far, he's played a role by "investing" in some AI companies for the purpose of making sure they're kept on track. I don't think you have anything to be worried about regarding Elon stepping down from Tesla/SpaceX to focus on the AI threat.

Thanks, hope you're right too. I just know he is an 'action' guy, he sees a global threat and launches a business to tackle it. Perhaps in this case he will just keep the watchful eye on them with his investments and perhaps the best way to do that is to maximize the value to TSLA in the meantime so he could use some of that capital/resources/leverage to best help keep an eye on AI getting out of control.

 

[JRod0802]

did anyone else see this excerpt from yesterday's interview yet and worry that not only (a) that this is a real serious threat but more importantly relevant to this TSLA investing thread that (b)Elon is growing so worried about it that he feels the need to take a leave from Tesla and SpaceX to develop a firm/group to solve this threat to humanity...he seems to feel now that this threat is more immediate than global warming or getting us onto Mars. Therefore, I could see some announcement coming of him officially taking a leave from his current companies to lead a crusade to prevent dangerous AI from developing and wiping humanity out.

Elon Musk: a Machine Tasked with Getting Rid of Spam Could End Humanity | Vanity Fair

Please watch the above and then please tell me that my worry for TSLA is irrational and that Elon will stay the course. It would be a significant stock price drop that would result I suspect (10-30%) but then we'd have a new base from there as long as the company stayed on track without Elon playing much of a role.

Wouldn't the imminent destruction of the human species cause TSLA to tank even more (like ~100%)? Maybe leaving Tesla to save the world would be best for TSLA. Also, as a side effect, it would save the world.

In all seriousness, though, I agree with DaveT. Elon is keeping an eye on AI, but SpaceX and Tesla are his main concern and will be for quite a while.

 

[mitch672]

I think someone has been watching a bit too much of this show: Person of Interest - CBS.com

 

[jhm]

jhm, I followed the math OK in your tutorial while wondering the whole time how do we model the cash requirements into our TSLA "flight." I haven't read DaveT's article on how Tesla could self-fund each phase of this mind-boggling growth, but I have to admit it seems impossible at first glance. I wonder what b rate he assumed. Perhaps he expected some debt which would make sense and add value if not too high.

Thanks. I intend to release a model that maps out the cash flow implications. For example, if you know how many cars you want to build each year, you can figure out how GWH of battery capacity you'll need. The incremental capacity you need tells you how much equipment you need to install and how much floor space you need. So you can back into how much spending on plants and equipment this will be. Then you trace out all the other expenses and revenue, until you get to net cash flow.

Currently, I am making progress on a disruptive market share model. I hope to share it in a few days. From what I've seen Tesla capturing 10% market share is very conservative. Competitors would have to grow EVs at about 60% per year to keep Tesla's share under 12%. Even with that intensity Tesla can still hit 500k cars in 2020. I'm pretty excited.

 

[SBenson]

Apologies if this was asked before. Many members here, including me, are "all in" as long term investors in Elon Musk through TSLA and to a smaller degree SCTY.

Musk is competing/fighting against many strong willed interest.

Tesla against
- Oil Companies
- Oil producing nations (Middle East)
- Other major auto companies
- Dealers
- Shorts
- Numerous 3rd party business like AutoService stations, gas stations etc.

SolarCity against
- Utilities
- Shorts

SpaceX against
- Boeing, Lockheed etc
- Other nation space programs, esp. Russian

I might be missing a few more.

It would be truly disheartening to see anything happening to one of the greatest visionaries of our lifetime. I'm not sure if I can afford the collateral damage on top of that.

So is it possible to buy life insurance on Musk, say for next 5 years?

 

[brianman]

So is it possible to buy life insurance on Musk, say for next 5 years?

Heh. "Can I buy life insurance for someone else, that I'm not even related to?" Interesting question.

 

[The Blue Owl]

So is it possible to buy life insurance on Musk, say for next 5 years?

Yes, you can, by buying an appropriate amount of far OTM puts to protect against this or other catastrophic events.

 

[hockeythug]

So is it possible to buy life insurance on Musk, say for next 5 years?

From a insurance standpoint, no. Principle of insurable interest. Just like how I can't take out insurance on your house hoping it burns to the ground.

 

[SBenson]

Autopilot will be in all future Tesla vehicles including Model 3

Betty says Musk said that. See the clip - towards the end.

Tesla’s Autopilot Feature: What’s It Feel Like?: Video - Bloomberg

 

[adiggs]

Something I again find interesting is how very differently I and many here perceive what's going on with Tesla, and what media and analysts perceive (or at least say they perceive) going on.

The consistent theme I am consistently hearing in the various news reports amounts to interesting but going the wrong direction / not game changing / not really all that big of a deal / nice bragging rights. I realize that's not 100%, but there's a lot of that.

I made this comment in another thread, but thought it was worth bringing here to the long-term thread as well:

What I saw in the announcement and in the videos from the D announcement, for those that aren't watching closely, is an echo of something like Moore's Law that just struck the traditional auto manufacturing industry. Namely, Tesla took an already incredible car by many measures (not all measure and not for all people, but many), and they made it:
- LOTS faster (low 4s to low 3s 0-60 time)
- faster top end (now 155 mph)
- AND more efficient (slight improvement to overall efficiency at 65 mph due to different gearing, despite the car getting heavier by the amount of 1 motor)

One of the most efficient and usable vehicles on the road, and they made it MORE efficient and LOTS faster? Really?

Outside of hybrid technology, where car makers started incorporating regenerative braking, small batteries, and small motors; when was the last time a car improved this much from 1 version to the next? Or maybe a more accurate way to think of it - improved this much over a 2 year period (decent volume shipments in late 2012, initial shipments expected in decent volume in late 2014)?

And none of this happened due to battery chemistry changes - the primary thing that we've all been thinking about as the primary driver of performance and range improvements in the car.

And these are just the easy to measure stuff. How about the idea of all of the control interfaces in the car being digital instead of analog? Think that will prove important to other companies as they try to get auto-pilot and later autonomous driving going? I don't know, but my hypothesis / guess is that digital will prove better / faster / easier / cheaper to work with.


I saw the goal posts that the "competitors" are for the most part not even trying to reach today (based on publicly available data and interviews) move, and move a lot. And my read on the situation today is that the only company that is really trying to move things fast continues to be Tesla.

This whole experience has confirmed my long term investment hypothesis is intact. The majority of the world, and the majority of the media / analysts, continue to be on the old side of the paradigm, and continue to try and understand a paradigm shift in the context of the old paradigm. If the competition continues to be on the wrong side of the paradigm, then my investment in Tesla today feels like knowing where Apple will be trading in 2010 when it's still 1990.

It's also disappointing to me for the outlook for our species, and our move to become more renewable in our energy production and consumption.

 

[RobStark]

Legacy automakers will at least partially electrify to meet 2025 CAFE/European Carbon Emission targets.

Tesla has just blown PHEVs out of the water in terms of performance in the premium end of the market.

Now Paulo Santos and his bear followers are saying this will force legacy automakers into BEVs.

Which will but Tesla profit margins into a vice.

Bad Tesla news is bad for Tesla and Good Tesla news is bad for Tesla.

 

[Krugerrand]

Great post, adiggs. I agree. I feel the reaction to this recent event is similar to the reaction of the announcement of the SuperCharger Network and to the Gigafactory. People get stuck in that box that they know so well and sometimes just can't wrap their brains around something this huge, or simply can't believe it's possible. It takes an army to move a mountain, right? Except when you pull out that one itty, bitty rock that's holding the whole mountain up.

 

[FluxCap]

Great post, adiggs. I agree. I feel the reaction to this recent event is similar to the reaction of the announcement of the SuperCharger Network and to the Gigafactory. People get stuck in that box that they know so well and sometimes just can't wrap their brains around something this huge, or simply can't believe it's possible. It takes an army to move a mountain, right? Except when you pull out that one itty, bitty rock that's holding the whole mountain up.

The Model III is going to stun the world from so many fronts, and that will be our iPhone moment. Model S and X are the iPods, very cool and desirable but not something literally EVERYONE MUST HAVE like the iPhone was almost immediately after launch. That is what the Model III will be to the world, and it will change things forever.

We need a lot of good Tesla owner advocacy to go on in the time leading up to Model III release so that our laws and regulations can be ready, especially regarding direct sales model, autonomous driving, and right to install chargers in multifamily dwellings.

If we do that, we help Elon succeed in changing the world.