Moderators' Choice: Posts of Particular Merit

[StealthP3D]

View attachment 900507
So Farley thinks that dealer network is an asset and not a burden!!

Elon Musk has made so many big mistakes.

First he bet on a kind of car that no one wanted, ones powered by batteries. Ha ha.

Then he decided to bet against dealer networks by running his own delivery/service centers. Just dumb.

Then he chose to put into production a big, high-end luxury car that less than 5% of the car market could afford. What was he thinking?

Worse, it was sedan, a body style with a shrinking market share. Bad move. Ford could have told him sedans were not profitable.

Then he built a worldwide DC fast charging network that the company could not afford. He wastes money on customers as if they actually matter.

Then, when going into high volume production, he again blundered by choosing another unpopular sedan style that only rich people could afford.

Then he came out with a car that was guaranteed to crush sales of his other mass-market car because it looked just like it and was bigger inside. Foolish.

He announced an 18-wheeler that violated the rules of physics by running on batteries. Is this guy on crack? It will never work.

He unveiled a pickup truck so ugly it disrespects America. It's so out of touch with reality no one will want it. Elon is stoned on drugs. He doesn't understand pick-up buyers and how traditional they are.

He scares all his buyers off by tweeting bad politics. No one likes him anymore and they will refuse to buy his poorly made wares anymore.

Last quarter he may have had record sales but he will be unable to service all those cars because he has no dealership service network. Big mistake.

The end is near, Ford Dealers are caring, understanding people, unlike that Elon Musk. That means they will prove their loyalty to Ford by refusing the temptation to continuing to add on thousands in Dealership markups. Remember, you are part of a team and that is more valuable than $40k per truck pure profit.

That Elon, he'll find out what a mistake he made.

 

[petit_bateau]

How high of a global market share do you think Tesla can reach without selling to people that need a car smaller than a VW Golf? They are at 2% global market share. I think they could easily double or triple that without even approaching the need to address that market segment. Tesla will do what's best for the mission and Tesla shareholders, not enter market segments too early simply because those market segments exist.

I wouldn't be hammering on this single point so hard if it were not so apparent that people are forgetting how to think logically. Tesla doesn't do things "because it's there", they do things because it makes sense to do them.

I understand your point. It makes absolute sense for Tesla to work in a very logical fashion down the creaming curve. This has always been explicit in the plan.

My guesstimate is that the size constraint probably is a hard constraint on about a 1/3 of cars in WOUSA. There is of course also a price constraint that is similar to the USA curve in WOUSA, but with the lower end shifted somewhat in many countries. To a certain extent there is an overlap of the two constraint sets, so poorer people can sometimes have a space constraint in mind, but this is by no means a full overlap of the two sets. You only have to look at car sizes in some very high cost real estate areas (Tokyo, Berlin, London, Paris, Shanghai) to appreciate that affluent people sometimes have real 'needs' (in this case hard-space-constraints) to address. This is where hot hatches came from in many ways, selling Golf GTIs to the yuppies in Sloan (Kensington) back in the day.

If you throw away 1/3 of the world vehicle market as being so price driven that they'll never buy a Tesla I think that is fair. My expectation is that Tesla will continue to price itself at the upper end of all the segments it chooses to enter, so that will price out about that third. Then let's assume that some folk will stay in the "anything-but-Musk" category, perhaps another third. Whether that is genuinely because they hate Musk or more positively because they love SEAT/FIAT/Mini/whatever doesn't really matter. So that leaves a third of the market across all segments that are realistically open to Tesla if they choose to enter them.

Then I've just pulled up a segmentation graph (Passenger Cars - Worldwide | Statista Market Forecast) and it seems to me they are using the Euro segment definitions ( Euro Car Segment - Wikipedia ). The Golf is a C-segment which is the medium on this, competes with the Corolla for example. In some markets the Golf is made in the hatch version, for others the booted version, just like the Corolla.

(a complication is that Tesla seems to target segment break points rather than segment mid-points, likely to maximise coverage, but set that aside a moment)

Medium car C-segment is 12m worldwide. The next segment down is the small B-segment, typified by Clio at 7m worldwide. Sum them and you have 19m/yr which is almost as significant as the SUV segment of 25m that the Y targets.

So if Tesla needs to enter C-segment using a low-cost (and low-price) next-generation model 3 then it would be able to sell 1/3 x 12m = 4m/yr excluding the size constraint issue and provided they were geographically present in all car markets. Assuming random distribution of the two set types the size constraint would then knock out 1/3 x 4m/yr = 1.3m/yr leaving 2.7m/yr. Allow for geographical factors and that is probably excluding 1m and leaving 2m in the cheap-but-long-model-3/Y.

Given that 3/Y production is 1.3m in 2022, 2.1m in 2023, and 3.0m in 2024 it seems to me that Tesla will have exhausted the available buyers in the current set (premium/exec and large) and also your mooted set (cheap-large) within the next 24-months. I don't think the strategy of cheap but largish sedan is viable that much longer (though it is good until then). Hence the need to go smaller fairly soon. But the SUV segment can likely be mined for far longer as it is 25m/yr and that is of course why the Y was launched.

From product announcement to product release needs to be short for the Golf-hatch equivalent. Less than a year ideally, about the point where info leakage cannot be contained any longer.

I think that Tesla will position to overlap Golf and Clio segments, this is the normal strategy that Tesla adopts. Also they generally go with a platform approach so it will be a 2/Z, not just a 2.

There is unhappy experience of 'just' cutting the backs off of sedans to create a hatchback. See BMW 3-series for a case in point. Ditto going the other way - the Bora is a poor sedan. So a comptitive hatch really needs to be purpose-designed and probably to get another product out of the same underlying production line (because the line is part of the product platform always in automotive). I've a few thoughts as to what that second product might be - likely a crossover light van / small MPV.

Inside volume in BEV is better than dino juice. Therefore I suspect we will see something that externally fits this, but internally has more volume.

Clio : 4,050 mm L x 1,798 mm W x 1,440 mm H
Golf : 4284 mm L x 1789 mm W x 1456 mm H

Probably coming to market in 12-24 months. So announced in 0-12 months. I'm not sure whether that is the March-2023 announcement or (more likely imho) a March -2024 announcement. I think they need to get the Cybertruck out the way and 4680 running and ramping smoothly before they announce the 2/Z.

My guess is the 2/Z will be a one-piece base casting to reduce cost. Perhaps only one (FWD) motor in the normal variant with two motors for the AWD sport version. Done like that the margins would be insane for this both in the high and the low end versions. And notice that it would be highly attractive for all of the 19m/yr C+B combined segment that is second only to SUVs globally in volume terms at 25m/yr.

Just my guess.

 

[Papafox]

I read Papafox’s Daily TSLA Trading Charts with great interest, not the least because of the great insight into what goes on behind the scenes and the manipulations that occurs all the time.

There is one thing I don’t quite understand though, perhaps someone here can explain it: It is apparently quite normal that eg. market makers short TSLA during the day to keep the price down and then cover for the shorted stocks during the Closing Cross at the end of the trading day. I would expect a somewhat symmetrical effect on the stock price, I.e that the price would go up with approximately the same mount when covering as it went down when shorting. I don’t see any signs of that, so did I miss something or what Is the explanation for that? Thanks!

Markets are more complex than the simple rule of buying X shares brings the stock price up so much and selling X shares pulls the stock price down so much. Instead, buyers and sellers are affected by expectations as well as disinformation.

Take, as an example, the inability in recent days for TSLA to climb above $200. Market makers and hedge funds have been shorting TSLA as necessary (capping) to keep TSLA below 200 when it is quickly heading for a higher price right after market open. If you were planning to sell some Tesla and you saw TSLA moving quickly upwards, your tendency, if you wished to maximize profits, would be to hold off on selling until TSLA looked closer to a top. What the capping through short-selling does is create an artificial top for the day that would not otherwise be present with normal market dynamics. The seller sees TSLA bounce off 198 and head down to 197. He decides this is the best TSLA will do for the day and sells here. His selling may contribute to a further dip in the stock price. Meanwhile, there are buyers waiting on the sidelines for either a deep dip or a strong increase which they don't want to be late buying into. When TSLA bounces off 198 and settles lower, these sideline buyers decide there's no reason to invest in TSLA this day because the stock is clearly not going to run much higher than it already is. They stay on the sidelines and fail to put upward pressure on the stock.

Of course eventually the cap fails. We saw such a failure in recent days when a known resistance point of TSLA, 167, was breached. Many buyers were aware of the resistance point and when TSLA broke through 167 you saw strong buying take it much higher. A quickly rising TSLA changes both buyer and seller expectations with sellers holding off selling until a higher equilibrium price is reached and buyers accelerating buying so as to catch the run-up early. It's all about psychology. The short-sellers who capped can slowly buy back throughout the day if they have succeeded in holding the cap, and they can finish with buying to cover during the 4pm closing cross when that buying has negligible affect upon the day's stock price and even less affect upon the inclinations of buyers and sellers going forward.

Shorting a stock during the day and then covering during the 4pm closing cross is just one technique for holding the stock price back. There's spoofing, as well, where hedgies and MMs may put in large sell orders above a certain price without the intention of actually selling. If the stock price gets too close to this selling price, they will pull the order before it is executed. What the spoofing looks like to an advanced seller or buyer with access to the TSLA order book is that there's a price above which TSLA will not rise because of the abundance of sell orders just above that price. Sellers decide that since TSLA won't rise above that price, they'll sell below. Buyers see TSLA unable to climb above that price and figure there's no more upside for the day (best to hold off buying until another day).

I'm sure @Artful Dodger and others could expand upon these observations, but the bottom line is that not all buying and not all selling affects the stock price equally. That buying or selling that changes the expectations of the market clearly has a larger affect on the stock price than trading that doesn't.

Hoping this explanation has been helpful.

 

[petit_bateau]

The best predictor of future performance is past performance.

Enough 2022 data has become available to do some meaningful crunching. I've not completely finished that yet, and there are some minor inconsistencies that I either haven't scrubbed out or don't yet have good data to scrub out. (So please don't fuss about any minor data inconsistencies). The data sources are the same public domain ones as I have used in the past, for previous annual summaries that I have put out at this point in the year. Already there is some interesting stuff emerging.

Crucially this raises two interesting questions on the cell supply front, which I would appreciate the views of those who have dug further into that:

- Q1. Can the cell suppliers (and their mineral suppliers) continue to meet the total annual increases that the historical evidence suggests will continue to be met ?
- Q2. Can Tesla continue to capture at least a 20% market share of that cell supply for vehicle use ?

Let us be clear, Tesla is doing very well in growing the business. But also, and we must recognise this, so too are the aggregate of all the other auto makers and their corresponding supply chain partners.

In my analysis I only classify 'pluggable' electric vehicles as EVs, i.e. EV = BEV + PHEV. The fuel cell vehicles (FCEV) and the non-pluggable hybrids I just lump in with internal combustion (ICE) as they are rounding errors. First of all we can see that the overall vehicle market has substantially stabilised but not necessarily recovered. Dino-juice (ICE) vehicle production is now falling and there is a growing wedge of EV production making up the market. The pluggable hybrid segment (PHEV) is still growing but its growth is definitely decellerating and it is clearly going to be a dead-end for the mass-market PHEV fairly soon.

Looking more closely at the EV market here is the overall market situation at the end of 2022 with the corresponding market shares in tabular form. It is important both to understand the vehicle shares, and the cell supply shares. You can see in the battery/vehicle that all vehicles are trending towards a greater cell capacity, no surprise there. At this rate of cell/vehicle growth in another three years non-Tesla BEV will be at 60kWh vehicle pack sizes:

Or if you prefer graphical form this is the market share situation :

Tesla's share of the EV market peaked in 2019 at 17% by vehicle volume, and also in 2019 Tesla's share of EV battery supply peaked at approx 35-32%, and on both metrics Tesla's share has been sliding since, now (2022) being at 12% and 22% respectively. So one needs to recognise that Tesla has done an outstanding job of growing profitably, but also to recognise that in aggregate the other auto makers (and their supply chain partners) have grown their EV offerings even faster than Tesla since then, albeit the likelihood is that they have struggled do do so profitably in EVs.

This is relevant because the long-run dataset is now providing a good match for S-curve adoption models in a way that there was not sufficient data to meaningfully predict before. And the result is dramatic, with it being game-over by 2030 if the current adoption trajectory is sustained.

This S-curve (grey) is a three parameter logistics curve that has been history-matched against actual data (green) from 2010-2022 using a computerised 'solver' to get the least-error fit.

Logistic function - Wikipedia

en.wikipedia.org

Previously it did not seem to me that there was sufficient data to get a reliable result, plus there was the added confusion of the Covid pandemic. But now that there is stabilisation observable - and significantly - the Covid pandemic has not been too disruptive for EV growth, then a sufficient match seems to be emerging. And it is going faster than was expected as the incumbent ICE manufacturers are trying; and as the new-entrant ICE and EV players are very competitively forcing the transition (the switch of BYD to a full-EV manufacturer is very important). Plus of course Tesla.

As a generalisation such a growth model is a good prediction tool provided that a new constraint does not impose itself on the scene, and the constraint that I think we need to be aware of is in relation to cell supply growth, and everything necessary to achieve that in terms of raw materials etc. So let us look more closely at that. I've circled two cells in red for 2024, but first observe that the overall growth rate is tending to trend down. The 345 GWh vehicular ccell capacity production adds for 2023 appear realistic given the achieved 208GWh production add for 2022, and note that there must be excess production add available - we know this because the stationary storage market is also growing.

(This tends to suggest that whilst Covid has had a discerbable effect of EV adoption, it has not been the cause of a 'catch-up' of excess capacity in 2022. My suspicion is that all manufacturers prioritised keeping EV lines going during Covid, and preferentially idled ICE lines whenever supply chain disruptions became unamanageable. That there was some impact from Covid is also discernable when one looks at the actual vs history match error term, but it is surprising how small it is. Overall I don't think the history match is being fooled by Covid artefacts.)

But the crunch year overall is 2024 where 756GWh of additional vehicle cell capacity is needed. If the 2024 growth rate of 92% can be managed then everything after that is easy. And the reason why it is so large is that this forecast now assumes a strong return to the previous size of vehicle market that had been over 90-million per year, specifically to 92m/yr in 2024, and so this flows down to the cell demand. And because in the past the cell manufacturers did meet the demand, then the question becomes will they do so again ? Especially noting that excess cell capacity, primarily LFP, is flowing into the stationary market. After all the best predictor of future performance is past performance.

The alternatives are:
- vehicle buyers will switch from BEV to ICE at the margin, and the 92m demand will persist but be met by dino-juice; or
- vehicle buyers wil postpone vehicle purchases until BEVs become available, and the market will become capped at approx 80m/yr for several years; or
- the average cell/vehicle trend will flatten through the supply crunch, with a mixture of small-pack BEV and small-pack PHEV competing against big-pack Teslas so keeping the >90m/yr vehicle count but failing on the cell-supply (bad news for wannabe US-pick-up-truck drivers migrating from ICE to BEV); or
- cell suppliers (and their mineral supply chains) will meet the challenge.

For the time being I tend to discard the option that vehicle productivity/utilisation metrics will increase, i.e. I am being pessimistic regarding the likelihood that autonomous vehicle technology will be significant in this time period. Opinions may differ on this.

Hence my posing the first question :
- Q1. Can the cell suppliers (and their mineral suppliers) continue to meet the total annual increases that the historical evidence suggests will continue to be met ?

Turning to the effect for Tesla the quick take is that if this S-curve does play out, then the maximum (best) outcome for Tesla is to achieve its own stated target of 20 million vehicles per year by 2030. There is unlikely to be significant market growth of EVs after 2030, perhaps even decrease if autonomous driving eventuates. So for Tesla to grow after 2030 would require Tesla to gain market share from other EV manufacturers at that point, which is a zero-sum game. However we then need to return to this table and note that on EV vehicles Tesla is down to 12% market share, therefore Tesla will have to recapture EV market share in order to obtain a approx 19-20% market share by 2030 that is implicit in the stated target of 20m/yr. To pre-emptively counter the valid response that the BEV market share is what matters, one really needs to look at the core underlying constraint which is the cell supply. Here the Tesla cell position is 22% at end of 2022, so still on track.

But equally one can see that the Tesla cell position has been declining from its peak, and has been declining at a rate of 2-4% per year. This is because the other manufacturers have been outperforming Tesla in sourcing cells (even if they have made some bad decisions, such as going for pouch). Nevertheless as a minimum Tesla will need to arrest that decline in the cell supply fraction and hold it above 20% for a decade if it is to achieve its 20m vehicles/year target. The reason why Tesla has to capture a >20% cell supply fraction in order to meet its vehicle ramp targets is because Tesla puts larger packs in its vehicles, so Tesla has to try harder.

At the level of a Tesla shareholder this does tend to focus the share price analysis down to 'only' the 2030 time horizon. And if one is as cautious as I am regarding the financial performance of the Tesla energy side of the business (and I'm no bear)*, then the vehicle side's performance over the next 7-years is critical. If the decay in Tesla's relative position continues then if the vehicle parameter stabilises at 12% of EV, then the Tesla vehicle quantity will be 'only' 10.5 million/yr in 2030, and even this would represent a turnaround in the rate and direction of the ongoing decline in the cell % share. Staying above a 20% cell fraction is crucial for Tesla shareholders !

Hence my posing the second question :
- Q2. Can Tesla continue to capture at least a 20% market share of that cell supply for vehicle use ?

These are absolutely dramatic rates of change we are witnessing, utterly transformative in a global sense for all humanity. At this point of course minor changes in trends might *sugar* things by a few years, or by a few tens of millions, but nonetheless the sheer scale and speed of what is going on is amazing. I've been working towards this for 30-years of my professional career in the wider energy sector, so it is very gratifying to see it coming to fruition. I am also a Tesla shareholder.

It is in that context that I pose the two questions I do.


* As an aside, by looking at the vehicle cell production add, one can see that global stationary storage uptake will really accelerate after 2025/2026. Until then the vehicle market will be the dominant cell growth driver.

 

[petit_bateau]

- Gorgeous team breadth and depth. Hired for ability to get it done within a well-aligned culture, not any other criteria. (Well, one exception).

- The overall scale of the global energy transformation was very much in line with the same models I've built, giving much the same results. (I put more of my results on the Resource Angle thread) : The Resource Angle . Lovely to see that Tesla is still aiming for it. Nice to see that they come up with the same financial answer I do, i.e. winding down the fossil economy ongoing costs pays for the buildout of the renewable economy.

- (Anybody fancy a 10-year short on fossils ? 20-year ? How are pension funds feeling ? They have no excuse for not paying attention to this stuff now)

- Musk clearly doesn't consider V2G to be very beneficial. I think the same way. Nevertheless grudgingly it will get done, one day, perhaps. Almost certainly not as a retrofit. Most likely only for locations with a Tesla Powerwall as a minimum.

- Look at the bulk of that inductive charging pad in the sneak preview shot (the one alongside the shot of the Tesla cafe, with the red car in a garage). That is a clear signal that at present this could only be considered as a unidirectional link. Again another reason not to rush on V2G.

- PMG with sufficient torque that is not rare earth neos ? Tell me more. Something was in that slot. Is this the return of Ferrite2 ? Or what ?

- Gen 3 will be a 2/Z at least, because it is clear that it will have multiple models off the common manufacturing platform. Loads of good stuff about the design target for Gen 3. Perfect.

- They can't release a 2/Z now because they are cell-supply-limited. The extra 4680 capacity coming out of the Austin lines has to feed the progressive ramp of the Y there. But phew at least they are now on DBE, confirmed. The 4680 ramp is proceeding, not great, but not trainwreck bad either. The extra LFP coming out of China needs to feed the ramp of Berlin. And by late 2023 they need sufficient additional 4680 capacity to feed the ramp of the Cybertruck. And the ramp of Sparks will feed the Semi ramp, and the Megapack ramp (because otherwise they are nolonger a serious player in utility, and they've got to stay with the market). So there is no spare cell capacity for a 2/Z. So this year 2023 they are cell-constrained, hence only the blurt target of 2m. It is still all about cells.

- Cell material doesn't seem to be a huge concern. Enough of a concern that they are reaching through and doing work. But under control. Phew.

- It is possible that Monterrey will be the first factory to go with 2/Z, at least that's my guess. That gives 18-months from now for the cell supply to get just about enough ahead of the coming demand so as to allow for initial production of the 2/Z. I suspect we'll get leaks starting in about 6-months, then perhaps a reveal in 9-months. So first production during Q4-2024.

- Is paint control now good enough to paint separately and still get a match ? Or are they going unpainted ? (@unk45 ?)

- Tesla Energy as a service will, like insurance, be a very slow and progressive and hugely patchy build out. For much the same reasons - regulatory compliance and an abundance of caution.

- Stationary storage is going to be big, but I don't need convincing on the scale aspect of that. However no special sauce observed that is not available in the other products in the market. So no reason to think margins will be anything particularly special. Demand far greater than supply - again I don't need telling that - everyone outside USA who wants a Powerwall is well aware.

I've given up and gone SolarEdge (in fact we mount 30kWh today, hopefully and go live. The corresponding solar went live a couple months ago but we've all been too busy to do the storage until today). So Tesla will in due course need to find a way to play nicely with my SolarEdge storage or I ain't going to be a Tesla Energy customer. (So Daily Energy News will likely be late today, prob this evening).

- Lots of good info on Supercharger network. I need to mine the data on those slides a bit to get some calibration into my models.

- Relentless focus on driving down cost whilst increasing performance, both internally and externally. I love it. Means FCF pays for the build-out.

- FSD still on track, but no timeline. No HW4 mention, or did I miss that ?

- Optimus bot making seemingly good progress. That will indeed be very big one day.

- WTF was that lady on about.

- Now time for me to go install some storage

 

[Gigapress]

I was extremely pleased with this presentation last night, although it didn't cover everything I expected. Notably, the promised incorporation of SpaceX and Boring company to Master Plan Part 3 was nowhere to be found tonight, which makes me wonder if more is coming later. We were told to look forward to the Master Plan white paper, the next-gen vehicle reveal event, and the next Impact Report, so tonight definitely was only the first in a series of info dumps.

The big story for the car business last night is that they explained how they’re going to cut $15k+ from the cost to produce each car while slashing billions of dollars from the CapEx investments needed for each incremental 1M cars/year of production capacity. The goal of cutting the cost in half isn’t news, as that was effectively announced in 2020 on Battery Day when Tesla first officially announced intentions of a $25k car. What was news is explaining how they’ll do this and showing, for the first time, actual data on cost trends for several of the major vehicle subsystems. Tesla showed us last night that they are the only company in the industry that can produce compelling affordable EVs for the masses. The demand for a good $25k Tesla would be plenty for selling 20M per year, if not more (spread across multiple models around this price, of course). The question for me has been whether Tesla can actually make such a car with COGS of under $20k, and after Investor Day my confidence in that happening has majorly increased. $5k per car and 20M cars per year is $100B gross profit, and that’s before piling on subsidies and high-margin recurring software and services revenue. $10k per car, $200B. And will they stop at 20? After last night I’m more skeptical of that than ever.

Tesla was very clear in saying that the price elasticity of demand for Tesla products is extreme. That is, the quantity of orders is exquisitely sensitive to price. The was a strong hypothesis, but it’s now been experimentally tested with the price cuts. This has important implications for the strength of Tesla’s margins and total addressable market as they drop lower-priced models onto the market and gradually reduce S3XY prices over time as well. Tesla appears poised to DOMINATE the $25-45k market segment, and this is where most of the money is, especially if you can make like $5k or $10k per car. Prototypes are fun and exciting but what we really needed to know was the plan for resources, logistics and production cost and that’s what Tesla delivered. Don’t get mad that they fed us veggies and brown rice instead of candy. As a long term investor, the core of my thesis has always been that Tesla can make more cars than anyone in history with low OpEx overhead and strong gross margins as the lowest-cost producer. This is how the auto business can hit $100 or $200 billion annual earnings in the 2030s conservatively assuming level 5 autonomy development will have totally failed. In conjunction with Battery Day, Investor Day greatly reduced my remaining doubt that Tesla can do this.

Toyota originated a useful eight wastes framework that basically is the first principles of efficient industrial engineering:

1. Overproduction
2. Inventory
3. Waiting
4. Motion
5. Transportation
6. Rework
7. Overprocessing
8. Underutilized human potential

The more you eliminate these wastes, the more you can improve safety, quality, throughput, morale and cost. I recommend rewatching the manufacturing sections of the presentation with this list of wastes and consider all the ways Tesla is deleting them throughout the value chain. Like Pete Bannon said, they’ve found all kinds of ways to shave the carrot.

This slide and the build sequence animation was great. In 2020 I was impressed with the Supertub. Last year I was impressed when Munro Live showed us the Model Y structural battery pack assembly with the seat and everything built up atop it. Now Tesla has revealed they’re taking that concept to a whole new level by completing almost all of the general assembly work before mating the major structural elements. This is revolutionary from an access, ergonomics and safety standpoint. The body in white itself has traditionally been an annoying obstruction to general assembly because it’s basically a big enclosed cage. Humans have to lean and contort into awkward postures to get work done, and robots have to slowly and carefully move in and out of the openings. No more of that with this new design, and as Tesla noted this will improve the density of value-added operations per square meter of floor space by about 40%, even as it also deletes traditional non-value-added operations like putting the doors on multiple times. Lars mentioned "tested subassemblies". This is also key. Fixing problems is also a lot easier before they’re covered up with other hardware. Further, with the old way, most of the mass is being moved around without added value. With this new method, there's much less wasted motion and force. This will also further reduce the energy embodied in the manufacturing of each car.

This new sequence is also much more parallelizable than the Model Y line and the smaller subassemblies allow 33% more people and robots to simultaneously operate on each vehicle.

My big question with respect to this new assembly sequence is exactly why no one else has done this before. Is it only feasible with an EV architecture? Are castings or structural battery packs required to make it practical?

After seeing what Tesla presented I think this plan is probably better than a complete full-body casting, which is really just a better way to complete the old design flow.

If you haven’t worked in manufacturing you might not realize just how terrible wire harnesses are from fabrication to assembly to troubleshooting to service. They are often one of the worst and most frustrating aspects of building products. Tesla showed last night a strong trend of reducing wiring in the vehicles and a path to reduce even more in Gen 3. I won’t rehash what they said but it’s a big deal for the low-voltage system.
Tesla has continually said manufacturing will be their long term competitive advantage and this event was mostly about manufacturing. They showed us how they'll make Gen 3, not the cabin design and sheet metal and shape. That stuff is relatively easy and everyone in the industry knows how to do it.

One aspect I think Tesla understated or maybe doesn't see…The beginning of the presentation covered what is needed to transition the world to sustainable energy, with an implied assumption that there will be a one-for-one replacement of current applications. I think this is a profoundly inaccurate assumption. My thesis remains that overall energy consumption is actually going to increase many times over, despite the greater efficiency of electric motors compared to any Carnot heat engine. Whenever supply of any fundamental factor of production increases such that it’s cheaper, better and more available, economies consume more of it. This will happen with clean energy, and it already has been happening with thermal energy sources since the beginning of the First Industrial Revolution. We consume far more joules of coal/oil/gas per capita than we ever did with less-efficient traditional biomass like wood. The long-term cumulative numbers presented last night should be viewed as a baseline scenario showing it’s technically and economically possible to get humanity off of fossil fuels by 2050, but it’s not presenting the magnitude of the true long-term opportunity of energy and the new ways we will use it.

What else we got that stood out to me:

• Hard historical data showing what we've thought and proving what the Munro team has been claiming all along: that Tesla's innovation has been aggressively reducing costs in every major vehicle subsystem.

• Digital twin and digital thread principles are deeply embedded in everything Tesla does, and the shift to using exclusively custom Tesla-designed microcontrollers is the final step to unleashing the full power of this strategy because Tesla engineers will now have total control over the brains of the car. Tesla showed a deeper glimpse than ever into their incredible data management and end-to-end software integration.

• FSD Beta collision rate finally revealed. Human-supervised FSD Beta has decidedly NOT increased risk for customers or others sharing the road. 6x lower collision rate. One could argue that even with fewer collisions there may be an elevated risk of catastrophic failure, but seeing as there have been zero reports of deaths or injuries, I’m inclined to believe that the collisions that have happened on FSD have not been especially serious compared to the statistical norm for human drivers.

• As far as I can remember, this is the first time we've heard any detail directly from Tesla about Factory Mode. Joe Justice has talked about it extensively but I still have some skepticism for stuff he claims because it seems like he tends to exaggerate. Hearing it straight from Tesla was great news. Tesla is basically using the car’s display as visual quality control, a new twist on the traditional Andon concept. Joe Justice has also talked a lot about Tesla’s software-style continuous integration testing in the factory and Tesla also mentioned this last night. It’s the right approach in my opinion.

• Lots of miscellaneous bits of technical info that the people who insist on negativity seem to have completely missed

• Specifics on just how cheap superchargers are

• Clear guidance that the crazy OpEx cost control we’ve seen is likely to continue as business scales, implying amazing leverage is coming

• Powertrain: No rare-earth metals, $1k cost, agnostic to battery chemistry, 75% less SiC

• 48V for all low-voltage components, completely leaving 12V behind

• Zero cross-car power wires by moving away from centralized control to local controllers (edge computing). Ethernet (much lighter weight than the old wires) will route data between microprocessors.

• Advanced in-house electromagnetic physics simulation software that is faster and more accurate than any commercially available options

 

[Wingfoiler]

In the context of the recurring conversation around price cuts and demand, I thought it might be helpful to graphically show what I understand the price elasticity picture to be for 3/Y. The exact shape of the curve is wrong, but it may still be directionally useful. I’m sure there are many here who are far more familiar with these economic topics than yours truly, so please provide constructive feedback.

A few things to point out from this:

• It is critical to internalize the non-linear nature of the price elasticity curve.
• It is critical to consider where Tesla is on the curve in terms of both COGS and production capacity. The recent price cuts + IRA, and Elon’s comments at ID2023 help confirm that 3/Y is on the non-linear part of the curve.
• The maniacal focus on reducing COGS while increasing production capacity ensures that price cuts will happen over time, all other factors being equal.
• The dramatic price reductions for the Gen 3 platform should reduce the probability that Tesla pends much, if any, time on the right side of the curve for vehicles built on that platform.
• To further drive that last point, a sweet non-linear curve isn’t that useful if an automaker is stuck way too far to the right. See a Rivian example below – I’m not very familiar with their business but I believe this is directionally accurate.

To be clear, I don’t know if Tesla will be able to maintain amazing gross margins while ramping new factories like crazy. For long term investors in TSLA, the important thing is that Tesla has room for significant growth with current models with marginal price cuts, and can maintain enough FCF that they can fund aggressive growth. From Zach/Elon’s comments recently neither of those seems to be a significant risk at this point.

 

[Gigapress]

In the context of the recurring conversation around price cuts and demand, I thought it might be helpful to graphically show what I understand the price elasticity picture to be for 3/Y. The exact shape of the curve is wrong, but it may still be directionally useful. I’m sure there are many here who are far more familiar with these economic topics than yours truly, so please provide constructive feedback.

View attachment 914528

A few things to point out from this:

• It is critical to internalize the non-linear nature of the price elasticity curve.
• It is critical to consider where Tesla is on the curve in terms of both COGS and production capacity. The recent price cuts + IRA, and Elon’s comments at ID2023 help confirm that 3/Y is on the non-linear part of the curve.
• The maniacal focus on reducing COGS while increasing production capacity ensures that price cuts will happen over time, all other factors being equal.
• The dramatic price reductions for the Gen 3 platform should reduce the probability that Tesla pends much, if any, time on the right side of the curve for vehicles built on that platform.
• To further drive that last point, a sweet non-linear curve isn’t that useful if an automaker is stuck way too far to the right. See a Rivian example below – I’m not very familiar with their business but I believe this is directionally accurate.

View attachment 914529

To be clear, I don’t know if Tesla will be able to maintain amazing gross margins while ramping new factories like crazy. For long term investors in TSLA, the important thing is that Tesla has room for significant growth with current models with marginal price cuts, and can maintain enough FCF that they can fund aggressive growth. From Zach/Elon’s comments recently neither of those seems to be a significant risk at this point.

Great post Wingfoiler! You're two for two on crushing it with posts. Please stay and keep contributing.

I think it's important for investors to understand the implications of this nonlinear demand curve on the future of the business. In the long run, maintaining 25-30% gross margins actually is the wrong strategy and not something long-term investors should be concerned about.

The reason is to enable greater scale. Lowering prices to earn half as much money per car is a good trade if it more than doubles the number of units sold, especially if operating expense won’t grow much as a function of the number of cars made. Due to the nonlinear demand curve, this is essentially how it will play out.

As an investor, I love to see Tesla earning $15k/car and still have a multi-month waiting list for orders, but I don’t want this forever. This is fundamental economics; a manufacturing firm that has strong gross margins, market-leading cost control, and customers who are sensitive to price should drop prices and sell more units. Right now, supply and demand are not in a stable long-term equilibrium. Demand growth is still outpacing supply growth, as evidenced by the margins.

Here is the same notional graph with the nonlinear demand curve (the blue line) shown as well as profit implications. In this hypothetical example, the quantity demanded increases exponentially by 12% for every $1k margin reduction. Underlying this, but not shown, is the assumption that this is not just a $1k price reduction per 12% demand increase, which would probably be excessively optimistic. It's actually reflecting a projection that average gross profit per car will decline as Tesla moves into lower price segments, just as we've seen in the transition from selling exclusively S&X to selling primarily 3&Y.

In this example, the optimal pricing strategy produces $8k gross profit per vehicle on average and results in 18 million vehicles sold. This is not exact but the purpose is to illustrate the interplay between price, quantity, and operating leverage.

Spoiler: Numbers in tabular format

Profit / Vehicle	Quantity Demanded	Fixed Costs	Gross Profit	Net Profit
$0	48	$15	$0	-$15
$1	43	$15	$43	$28
$2	38	$15	$77	$62
$3	34	$15	$103	$88
$4	31	$15	$123	$108
$5	27	$15	$137	$122
$6	24	$15	$147	$132
$7	22	$15	$153	$138
$8	19	$15	$156	$141
$9	17	$15	$157	$142
$10	16	$15	$155	$140
$11	14	$15	$153	$138
$12	12	$15	$149	$134
$13	11	$15	$144	$129
$14	10	$15	$138	$123
$15	9	$15	$132	$117
$16	8	$15	$126	$111
$17	7	$15	$119	$104
$18	6	$15	$113	$98
$19	6	$15	$106	$91
$20	5	$15	$100	$85

 

[unk45]

As we think of Tesla's nest moves we all seem to think of cars, pickups and Semi.
As Tesla expands around the world it is useful, perhaps, to see how the BYD process works, closely analogous to how many Chinese firms work.

Just one example, here is their timeline in Brazil, very much the same elsewhere:

BYD Brasil | Energia Limpa e Mobilidade Elétrica – Inovação e tecnologia para uma vida melhor

www.byd.com.br

Capsule:
First, they invariably build busses or trucks, so they can support infrastructure in charging and service on a route-specific basis and demonstrate BEV advantages;
Second, or 1A, they supply taxi and other commercial vehicles, still with support attached;
Third, they build battery factories and assembly plants;
Fourth, they begin to sell cars and negotiate to build auto plants.

That model is far different than is Tesla, obviously. It is also very patient and long term.
BYD, Chery, JAC, CATL, State Grid and more all move in similar manner, with State Grid particularly important is establishing infrastructure.

Tesla has fairly minimal US support in any strategic way, except in China, perhaps. Tesla also chose top down, not bottom up, primarily because they did not have strategic support. When we, as Tesla investors view these others we tend to see them as inferior mirrors of Tesla. That is a myopic view, but understandable.

Tesla has all the advantages and strengths we document so well. Tesla also has no real experience with utility vehicles, which has not been an impediment.

Tesla has had success with public utility services from Grid Services to Stationary Storage, but has thus far sacrificed that market to better needs for cars. Perhaps the single most effective product for Tesla has been Supercharger, but most fo us see that as a service to encourage Tesla sales and support.

If going back to the BYD case fro a moment, and the other Chinese examples, we can see the one thing they've not done is blanket their nascent market with chargers; not needed since they begin with commercial route-based markets...

And we then see the Tesla advantage in structural rather than only production excellence and technology. It si Tesla that built Superchargers to allow people to drive their cars to the Mount Everest base camp. Some of us probably remember those videos. That accomplishment galvanized substantial favorable image. Still, most of us really miss the huge marketing benefit of Superchargers.

We think of market potential around the world and remark a given place has no opportunity because of the paucity of charging. True. Then think of California in 2014. Even more than the cars themselves, wonderful though they are, the Supercharger network sells Tesla where it seems to be too expensive and impractical.

Rather than write off any given markets it might be better to assess how much Supercharger capacity would be needed to service the market, how much stationary storage and solar capacity could defray the operating cost, and only then conclude viability. At that point government incentives and impediments become relevant, remembering that the Chinese tactics of beginning with labor intense and high visible benefits end out being productive.

FWIW, BYD has had a letter of intent to buy the Ford 300,000 unit capacity plant in Bahia fro nearly a year. The new Brazilian President is pushing hard for that one. We still do not have any official word on Tesla raw materials sourcing, but that is also high on Lula's list of desires.

When we link support infrastructure, industrial investment (in anything) and good employment prospects many otherwise less interesting markets suddenly become attractive.

These subjects are very familiar to Tom Zhu, Elon Musk and several others. They'll not always tell su everything. Just look at the two covered vehicles on Investor Day, then think how many of us decided they were one thing or another without any information. What if everyone might be correct? What if it is a highly versatile 'platform', Tesla-style rather than, say, VW-style?

Is Tesla learning from the China examples? Morocco Superchargers but no sales; is that one only a tourist play?

 

[cliff harris]

I think Teslas approach to FSD is absolutely brilliant and the right way to do it. I'm a semi retired-AI coder, FWIW.

The main reason I support their method, is not for anything technical (I'm not familiar enough with radar vs vision and large scale learning models), but because as an investor it is the ONLY method that makes sense.

Lets ask a simple question: Will FSD EVER be achievable, at any stage, by any company?

I think most people would say yes. Its like asking if man will ever set foot on Mars. Might be 10 years, might be 50, but its unlikely we just 'give up' and make no progress. So once you accept that someone WILL achieve it, you have to ask what an FSD future looks like. Everyone except Tesla seems to be focusing on mapping, multiple sensors, and sensor fusion.

Mapping is absolutely useless. The moment there is an accident that blocks a lane, or the moment someone somewhere forgets to update a database after making a change to some street sign or road marking, all your HD maps become dangerous lies. Something that can NEVER be relied on with safety critical operation.
Multiple sensors sound great, until they conflict and you have to make decisions as to which to trust.
And even if you have weather-dependent, time-dependent, HD-mapped multi-sensor FSD... the minute there is some policeman stood in the road directing traffic to turn around and go back, its all utterly, utterly useless, and you are back to needing vision to process this unlikely event and deal with it.

Waymo, Cruise etc are very good systems for impressing journalists on carefully selected routes, and persuading gullible investors to continue to have faith. FSD is the complete opposite. Its very obviously deliberately seeking out the bad edge cases. The tyre bouncing down the highway (which chuck cook already has proven is detected just fine), the group of dumb 20-something men dressed in chicken costumes for a stag-night bash who suddenly charge across the road. The billboard at the roadside that has an image of a car on it, but its NOT a car....and so on...

Tesla's approach to FSD is brilliant, because its the only system that is desperately trying to avoid a local maxima. They dont always succeed, so there will be sensor suite changes, and already we have seen major algorithmn and architecture changes. But they are the only ones even ATTEMPTING a general solution.

If, in the nightmare situation that waymo/cruise get approval to run a true driverless robotaxi service before Tesla does, and even make a small profit from it, it will be living on borrowed time. Once a GENERAL solution is found, globally, then the dozen or so HD-mapped cities in the US will seem like joke.

 

[Singuy]

There was no need to reply, you stated your opinion like I stated mine. There are millions of people in the country and my decisions do not have to make sense to you, and neither yours to me. But I will explain in more detail as you wish.

I bought a lemon 3. The car had many issues the service center couldn't fix, including unacceptable rattles and build quality issues with the car being out of service for many months waiting on parts. I had to part ways with it for that as the main reason. The other was I just felt like it was too basic and limiting.

The X is the only desirable car Tesla makes for me at the moment. The 3/Y feel too cheap and lack too many basic car features at their price points. I want a screen in front of the wheel. One screen is just too minimalistic to me. I was in the market for a BMW IX, Mercedes EQS, Audi E-Tron, or Model X. The Model X has the best design, in my opinion. It has the best SC network and It's been 5 years since my Model 3. I figured why not give the Model X a go, see if Tesla's service has improved and their car quality.

I do like the brand and I do like the product. Everyone deserves a second chance, and that is what I am giving Tesla. But I was very close to getting the IX.

Anyways you asked about why other auto makers trade at book value and why Tesla is trading way beyond that.

First thing you have to know is that the market is forward looking only. People make predictions what will happen in the future and guess what, people are kind of right. Tesla beating GM and Ford's valuation way before they managed to make more profit than them combined, and have managed to match Toyota's profit Q3. The market predicted that 2 years ago when everyone was crying overvalued.

As for why legacy auto are trading at low PEs and at book value. Again the market is forward looking. One must know how big auto makes money. They make money via

1. Selling cars...kinda

2. As a financial service

3. Parts

So lets break those down on why the market is so bear.

Selling cars: Each of these big auto have reached their saturated market share. Now with the advent of electric cars, the market believes, by forward looking, that these legacy auto must spend 10s of billions of dollars for this transition. A lot of these companies have already announced their plans on a powerpoint, however are reluctant to spend that money. The reason? Because after dumping 10s of billions, these companies will end up selling THE SAME AMOUNT OF CARS (if they are lucky). So these investments return almost NOTHING besides keeping them from being wiped out as the world bans ICE.

Financial service: This is where they make money...for now. However you and I know that legacy auto loan out money on DEPRECIATING assets ONLY at a pretty low interest rate. Their only hope is that people continue to pay because a car is required to generate income for these folks. However if defaults start happening in a recession, legacy auto are upside down a boatload and hopefully gap insurance can fulfill..even PMI for houses didn't keep banks from tanking during the financial crisis. Want to know another crazy thing? Legacy auto PAID the "market adjustment" price gouging to the dealerships and now is on their books in the form of "good debt". Yeah...nothing can go wrong here. So the forward looking market knows that Tesla will be fine if a recession is bad because they were paid in full, while legacy auto could potentially fail like a bank with only bad debt...lol yeah 100% of their loans are depreciating assets ...lol.

Parts: EVs are more simple, Tesla is trying to get rid of parts and not have service be a profit center. Legacy auto must follow to be competitive so this arm of their profit just dies in the future.


So you see big auto are trading at book value because the forward looking market feels like they are kind of F-ed. We should remember that volkswagen or toyota generates almost the same amount of revenue as Apple. They could be trillion dollar companies if they were making the same operating margins. Tesla strives to get there, while the rest of the industry struggles to make their cars profitable.

 

[Gigapress]

Wow, I applaud you for your response; you put in 1000x effort more than a survey deserves...

I want to put my thoughts out there because there’s a lot of wealth and influence in the readership of this forum and also because these silly surveys end up getting spread by journalists and even well-intentioned investors who have real concerns, and I believe that’s probably how @aubreymcfato felt when contributing the link to the article.

I do agree with you, and as investors we do need to be careful about how to weight data and evaluate. It's not easy, but these kinds of surveys are pretty much the worst.

Right. I’m a strong believer in the power of science and empiricism and I want to help people avoid thinking traps and understand the hierarchy of usefulness of different data sources. This includes realizing that sometimes data is actively misleading if not examined rigorously. Survey question responses frequently differ from actual human behavior for many reasons, and there’s always problems with obtaining a representative sample of people to respond in the first place. Talk (such as clicking a multiple choice button on an online survey) is cheap and $50,000 car purchases are not, and it’s the latter we’re concerned about anyway.

So, here is for the forum’s consideration some actual useful data on those $50k purchases and well done analysis published by the San Francisco Standard on Feb 20th, using official data from the California Energy Commission, which can be accessed directly via their wonderful interactive dashboard.

This is very relevant because California is the largest and most important state car market in America, it’s one of the most Democratic-leaning states, and it’s arguably the single-most culturally influential state in the country. Here’s some hard facts and numbers to demonstrate California’s status as a political stronghold for the Democratic Party, courtesy of Wikipedia.

In the 2016 United States presidential election, California had the third highest percentage of Democratic votes behind the District of Columbia and Hawaii. In the 2020 United States presidential election, it had the 6th highest behind the District of Columbia, Vermont, Massachusetts, Maryland, and Hawaii. According to the Cook Political Report, California contains five of the 15 most Democratic congressional districts in the United States.
…
The Democrats also now hold a supermajority in both houses of the state legislature. There are 62 Democrats and 18 Republicans in the Assembly; and 32 Democrats and 8 Republicans in the Senate.
…
Democrats have won all of California's [US Presidential election] electoral votes for the last eight elections, starting in 1992.
…
Following the 2018 midterm House elections, Democrats won 46 out of 53 congressional house seats in California, leaving Republicans with seven.

Furthermore, it’s important to note:

1) CA leads the USA and most of the entire planet in EV adoption​

​

2) The two biggest urban areas in CA around San Francisco and Los Angeles are extremely D-dominated relative to the rest of the USA and even relative to the rest of the state​

If there were anywhere in the entire country and world where I would be concerned about seeing negative Tesla demand impacts of some of Elon’s more right-wing political views and his vocal criticisms of the current state of the Democratic Party that he has been expressing recently, it would be the LA and SF metro areas. Actually, I would especially look at the SF area because it leads California in EV adoption rates, because it is possibly the #1 most liberal area of the nation depending on where you want to draw the metro area boundaries, and because it's the one small region of the entire world that is most likely to contain people who care about what's been happening with Elon and his Twitter acquisition, his public criticism of local officials in Fremont and Alameda County, and his other recent extracurricular activities.

Fortunately, the data shows absolutely zero cause for concern (in the aggregate, anyway). As a matter of fact, it indicates wildly raging demand for Tesla vehicles that is at an all-time high with a robust trend for continued growth in the future, and this is especially true for the Bay Area as noted by The Standard:

But residents of the Bay Area buy far more ZEVs per capita [than LA area residents]. In total, the nine-county region around the SF Bay purchased 118 ZEVs per 10,000 residents in 2022. That’s more than double the statewide average of 50. And Bay Area counties took six of the top 10 slots for ZEV sales last year. In fact, San Francisco narrowly beat out Los Angeles as the seventh-ranking county in terms of per-capita ZEV sales—an impressive showing given that SF has the lowest rate of vehicle ownership in the state…

(Red dots indicate Bay Area counties)

(Red circle indicates Bay Area)

At our Silicon Valley TMC investor meetup in February, I learned from @EinSV that San Mateo County now has 25% of all new vehicle purchases being Teslas. 1 out of 4, almost unbelievable. Indeed, per the CA Energy Commision dashboard, in San Mateo County in 2022 Tesla sold 11,320 cars out of 13,711 total BEVs (83% share) and 46,696 total vehicles (24.2% share). At a global scale, this market share would already put Tesla close to the 20M/year goal (this is not a reasonable extrapolation but it serves to give a sense of scale.) San Mateo contains much of Silicon Valley and tends to vote about 75% in favor of Democrats in most elections. Per Wikipedia, “Every city, town, and unincorporated area of San Mateo County has more registered Democrats than Republicans.”

The SF Standard continues:

Nearly two-thirds of all ZEVs purchased in California last year were Teslas, giving the company its largest market share since statewide sales climbed into the thousands more than a decade ago. Teslas were the top-selling ZEVs in nearly every county in the state, with the exception of a handful of counties where residents bought a combined less than 20 ZEVs in total.

This chart is critical because California's regulatory environment has made it the #1 hotbed in America for other car companies to sell compliance EVs at a loss in order to be eligible to participate in the state's absurdly lucrative automotive market. Despite facing this extreme handicap of competing against companies willing to price EVs at levels that generate negative gross profit margin, Tesla is still outselling everyone else combined and is steadily gaining EV market share. Let that sink in. This is just embarrassing. Also consider what this implies for the oft-repeated arguments that more competition and BEV options will reduce Tesla's competitiveness. California already has a lot of EV options, including many models that are not available for sale in significant numbers anywhere else in the nation, and California also has a decent charging non-Tesla infrastructure relative to almost all markets in the world, and yet...Tesla dominates.

For anyone who still wants to express concern about "Elon's antics", please describe your reasoning for why California and SF/SoCal are somehow not representative of EV adoption and leftist political trends in the rest of the country, or alternatively describe why you think this trend is going to reverse in the future despite having already continued unabated through the entire pandemic and Twitter saga.

Also, anyone who was surprised by Tesla's decision to double down on developing an engineering presence in Silicon Valley instead of Texas may want to take some time to sit down and have a deep meditation session to ponder why you're placing so much weight on politics instead of other factors related to the business. Palo Alto was a clear winning choice and Austin will not be on the same level for a very long time, if ever. Other locales have intensely competed with SV for decades to wrest away some of its magic and tech dominance and every attempt has, thus far, failed. Tesla was born in Silicon Valley and though it's going global now, it's still a Silicon Valley software and computer engineering company at its core and will remain so for the foreseeable future.

 

[Singuy]

I saw someone posted this on an anti-Tesla/EV group on FB and thought it was pretty funny. Engineered Explained once said that if we were all transitioning from EVs to ICE, people would burn the city down in protest.

"Q: I'm thinking of replacing my electric car with a fossil fuel car and have some questions?

1. I have heard that petrol cars cannot refuel at home while you sleep? How often do you have to refill elsewhere? Will there be a solution for refuelling at home?

2. Which parts will I need to service and how often? The car salesman mentioned oil in the engine and timing belts that need replacing and a box with gears in it. What is this? How much will this service oil change cost and how often – and what happens to the old oil. Also apparently these petrol type cars generally stop on the brakes alone – so the brakes wear out much faster – how long will they last compared to my current car which lasts over 100k kilometres

3. In a petrol or diesel car, do I get fuel back when I slow down or drive downhill?

4. The car I test drove seemed to have a delay from the time I pressed the accelerator pedal until it began to accelerate. Is that normal in petrol cars?

5. We currently pay about 1.2p per mile to drive our electric car. I have heard that petrol can cost up to 8 times as much. Is this true?

6. Is it true that petrol is flammable?

7. I understand that the main ingredient in petrol is oil. Is it true that the extraction and refining of oil causes environmental problems as well as conflicts and major wars that over the last 100 years have cost millions of lives? Is there a solution?

8. I have also been told that you have to transport oil all over the world to turn into petrol or diesel, and these ships have in the past damaged the environment by leaking the oil, is that true?

9. I have heard that cars with internal combustion engines are being banned to enter more and more cities around the world, as it is claimed that they tend to harm the environment and health of their citizens? Is that true?

10. I have been told that these internal combustion engines make a noise when you start them – so early starts can wake people up, and driving a lot of internal combustion engine cars in towns makes towns noisy.

11. is it true people can steal the fuel from your tank

12. what is the drop in range in cold weather, I've been told a car that does 45mpg can drop to 37 mpg in winter – just curious on that one.

13. a friend told me that the exhausts wear out – is that true, and people steal them for the rare material used in them?

14. I was also told – that the exhaust gas isn’t good for you – and if you leave the car running in a confined space – like a garage – you will die – surely that isn’t true is it?

15. next door told me – these petrol cars – carry around 40 to 60 litres of highly flammable liquid which is pumped into a steel cylinder, and it’s then exploded to generate expanding gas to move a piston, and turn linear motion into rotary motion.
Why would anyone want thousands of explosions happening within a few feet of where your sitting.

16. a guy at work told me – he has a petrol car, and it leaks oil. When he parks it – surely that’s not right is it – leaving dirty marks on the floor and contaminating the environment so directly. How long before this happens if I change.

17. my dad told me – if you buy a diesel car – the hand pump smells very bad, and you have to wear special gloves to stop your hand smelling, and if you spill it on your clothes it terrible.

18. is it true – the petrol and diesel is so dangerous, that you can only buy the fuel at a special filling station, and not anywhere (hotels/Car parks/Home/Work)?

19. while technology is advancing, will I ever be able to refuel my internal combustion car for free using only the sun ?

20. would I be better off going straight to horse and cart, and not buying a horseless carriage – they sound pretty awful, burning dinosaur juice and polluting the environment whilst funding conflict and war and consuming raw material at an unbelievably high rate.

 

[unk45]

Maybe? Depends if there is a special meaning of "contributing" margins.
If talking percentage operating margin (OM), additional sales with gross margin (GM) higher than the OM raise the OM.
Whereas, one needs additional product GM to be higher than the baseline GM to raise that needle.
In other words, additional sales at the same GM yeilds the same GM, but shifts OM toward GM. S/X have higher GM, so those sales would shift both GM and OM upward. Conversely, reduction in those sales lower GM and OM.
Not as much as 3/Y (price-cost) changes do, but at 7k-10k units, it can have a perceivable impact.

"contributing" also raises another often ignored point: In any capital intensive industry there can be, and usually are, products that absorb capex and have the effect of reducing allocated costs per product whether the specific product appears highly profitable or not. Examples abound in the auto industry. The basic model of any brand absorbs costs that would otherwise be allocated only to higher end models. The same applies to components, with high end not having enough volume to make, say, BMS, cheaply enough, so Model 3, Y,X and S share a common BMS.

A typical example is the Volkswagen Golf. Type R and GTI would not be possible without the volumes brought by models like the 1.4 Trendline and it's cheap price. With Tesla all those principles remain, and we know the models in question.

Somehow it seems many of us have no real notion of cost accounting or fixed cost absorption, even though those are essential commonest of scale economies. Many 'analysts' and many of us bemoan Tesla price reductions without understanding the consequences of:
"Tesla Gigafactory Berlin has finally reached its goal to produce 5,000 electric cars in a single week" or: "Tesla's Giga Texas Builds 4,000 Model Ys Per Week" both quotations from 'inside EVs. That, in case we're missing the basics, means the marginal cost of Model Y is becoming cheaper every day as factories volume increase.

There are countless other contributors to Tesla increasing profitability, and we can list them ad nauseum, as we are prone to do here. Somehow despite all the evidence we still obsess over inventory levels of Models S and X even though they are consequences of the increasing diversity of Tesla product choices and, anyway, largely reflect shipping concentrations and other distribution limitations for high price, low volume models. Of course we all remember when they were the only models available, and even when Model S was the only one. Even there we miss that building costs for both have dropped with redesign, and marginal cost has further reduced with parts sharing, notably BMS plus using cells from a fully amortized factory and so much more.

Don't be surprised when the Tesla P&L arrives in a few weeks showing steady margins, greatly increased Free Cash Flow and, as we know, minimal debt.

I shall HODL but have also increased my portfolio concentration of TSLA. That had little to do with the bargain basement prices of past months, welcome though they were at the time, and everything to do with how well Tesla is positioned for recessions and other disruptions. A further risk mitigation is the diversification of sourcing and production in multiple countries insulating investors for excessively single country risk.

Note: Nothing in the foregoing is investment advice as referred to in US SIC code 6282, the UK FCA article 4(1)(4) of MiFID or other regulations since I am not in any way employed as an investment advisor nor certified as such in any jurisdiction.

 

[Gigapress]

Is Drew the next CEO of Tesla?

I know people like Tom Zhu for it, but Drew is the one who just penned Tesla’s next 5 year plan. I think people over-index on Zhu’s experience on the auto side. If energy and storage are truly Tesla‘s next chapter, seems like Drew is closer to the center of things right now.

Food for thought.

Drew has always looked more likely to me ever since JB Straubel left to work on battery recycling.

Drew is an engineer and Tom is not, and I think Tesla is going to ensure that engineering remains at the forefront of the company. Drew studied electrical engineering at Stanford and then since 2006 helped architect the rise of Tesla. He might be the earliest employee who’s still with the company (other than Elon), although I can’t find good information on that. Seniority and time aren’t everything but they do make a difference and Drew knows probably more about electric cars and Tesla’s overall technology portfolio than anyone else on Earth—even more than Elon, considering that Elon spends half his time on SpaceX and other activities. For many years, Drew was leading Tesla’s engineering along with Elon and JB.

Unlike Tom Zhu, Drew is also a US citizen and permanent resident and a native English speaker, which probably matters because the company headquarters, most of the key employees and most of the critical R&D are all located here, and the soon-to-be biggest factory will be just south of the border in Monterrey.

The Tesla investor relations page lists leadership as Elon, Drew and Zach and does not include Tom. Zach has an engineering degree but has mostly worked in finance in his professional career. When the time comes for appointing a new Tesla CEO & Technoking, Drew seems like the clear choice.

 

[unk45]

I have been reading a lot of fuzz about Tesla's needs for ads.

The more I think about it, the less it makes sense.

Don't get me wrong, I am actually in the camp of Tesla doing some informercial to promote EV and killing some FUDs.
However, I don't think ads are an effective way to spend money right now.

Before they spend a few hundred million on a marketing budget, they can spend that on smaller Gigas (Megas?!) to serve some specific markets where tariff makes EVs very expensive. From an investor perspective, I think it makes more sense. Tesla has more demand than what it can cater. The only people not buying Tesla is because it's not within their budget.

Yes, I get that Model Y/3 are now either in line or below the average selling price of a vehicle. But we need to see the bigger picture. It's not about just those "rich" in highly developed economies like US/CA/EU/CN... etc. It's about those who need/want a car but can't afford a Tesla. If there's a Tesla in 2x,000 or even 1x,000 range, it will cater to an entirely different market segment.

Put it into a perspective, everyone would love to have a Rolex... but it's Casio and Swatch that sell the most watches. Heck... even a no-name watch factory in China probably ships more watch that PP and Rolex combined.

And as for bringing more awareness... seriously... Elon dropped 44 billion to buy Twitter. If that's not big enough of an advertisement expense and brand awareness, I don't know what is. Tesla is synonymous to EVs. And everyone who uses Twitter, who became aware that Elon bought Twitter, will surely know or become aware about Tesla.

The Apple Watch was the best selling watch in the world, back in 2017:
.https://www.cnbc.com/2017/09/12/apple-watch-is-now-the-number-one-watch-in-the-world.html

As for advertising the traditional broadcast and print advertising are no longer dominant in any market apart from TV geriatric-targeting products. Tesla has from the beginning mastered 21st century techniques of promotion, eschewing the old ones. Somehow every few days people come up here arguing for those obsolete expensive generic advertising. Of course generic awareness and unaided recall are important, so Tesla has near 100% awareness and unaided recall even in countries they do not service at all. Intention to buy among prospective BEV buyers and home solar is very high too.

Bluntly it is absurd to suggest Tesla should waste money on any such devices. As John Wanamaker famously said more than a century ago, "I know I waste half my advertising budget, the problem is I don't know which half". Now in the 21st century we no longer need waste the half. Now there are highly specific promotional techniques, and Tesla uses them masterfully.

Right now Tesla needs only to produce more of all products, while allowing other manufacturers and media to ensure every potential buyer knows what is happening. In reality even the FUD tells potential BEV and storage products that competitors are terrified, so generates attraction that can be accelerated or deferred by pricing changes and/or increased Point of Sale supply when that is possible.

Why, I wonder, is it so difficult for many of us to understand these things? After all it is now a decade and Tesla has long since understood that:
... charging infrastructure sells cars, especially accentuated when that is opened to non-Tesla vehicles. Seriously, driving Teslas with Superchargers all the way from urban China to Mount Everest Base camp; driving from inside the Norwegian Arctic Circle to your choice of Ankara or Marrakesh and so on...Those generate gigantic PR without any marginal cost to Tesla, PR that nobody else can match.
...awareness of technical features sells cars, specifically all the children who wax rhapsodic over games, strange fart noises, and clever graphics. Do children make their parents buy cars? Cost to generate those future sales and foment wildly favorable attitudes, nearly zero, after all this is paid for by customers.

The list goes on, but many fo us do not see that Tesla wins the five P's of Marketing:
- Product: we all know that one;
-Positioning: by now we know about Plaid, Games, Falcon Wing Doors;
-Placement: no dealers, buy online or at a store with fixed price, all those Superchargers, Destination chargers, do not sell where you have not put Superchargers.
-Promotion: This is Tesla's cleverest trick. New Superchargers generate free publicity, those clever Positioning choices generate enormous word of mouth, among opponents, children fo all ages and buyers.
Price: Nearly all of us seem convinced price is the best tool. Why is Apple Watch best selling watch? Why do Wheaties outsell store brand Wheat Flakes? Why does Starbucks outsell Marcelo's Coffee? For that matter why is LVMH controlled by the world's richest man when all his products are more expensive than many others, and Tesla's CEO the second richest? Neither happened because they view low price as the key to sales. Both understand that Price is a crucial tool, promotional pricing can move inventory timing, careful Placement allows using Price techniques to reach otherwise unreachable markets. LVMH uses judicial product through entities like TJ Maxx, plus an inordinate placement with Duty Free shops.
Tesla is much quieter about their solutions, they sell unwanted trades and damaged products through wholesalers (just like LVMH, by the way). They have end of quarter promotions that generate outsized attention, not least from virulent criticism, that acts to increase sales. That last point is shared with LVMH when they let some excess Fendi or Christian Dior appear on discounters shelves, or Moët & Chandon Dom Perignon shows up with a duty free special.

The pricing strategies that employ those tactics are quite tricky.LVMH is one of the most adept, but Tesla is quite clever too. They regularly clear out inventory when they're ready to make a major improvement, they regularly use added inducements like free Supercharging and/or added features without charge.

The the end Tesla simply does not waste money on conventional wisdom like dealers, mandatory service intervals, or conventional industry incentives. Much less the advertising that really has no tangible benefit apart from making them look like every low margin OEM.

 

[jeewee3000]

Do you have a link to the post where you have got feedback. There is no need to segregate low post vs high post. Not everyone had to start their life on TMC in 2012 or before. Plenty of people who maybe new to TMC, but who are just as much capable as some of the TMC veterans. The key is to understand if we are discussing short term topics (quarterly earnings, demand, production, etc) OR if we are discussing long term topics. Almost everyone who truly understands Tesla understands that Tesla is once in a generation company with amazing prospects. That doesn’t mean we need to confuse that with short term topics.

What you are confusing is how pricing and demand works.

Listen up, I'll only explain this once.

You make it appear the only reason Tesla drops vehicle pricing is since at current pricing there is no (or not enough) demand. This is not accurate. Demand for vehicles comes and goes in waves (aka demand bubbles and pockets), geographically and chronologically. Q1 has the lowest demand, but Q4 generally has higher demand. (generally, this isn't set in stone)

Geographically / chronologically demand can also swing with incentives starting, running out or being announced. Think IRA, think incentives that are different per country.

Economic factors (per country/region) also play a big role. Lots of wildfires in California? -> less demand that time. Unstable government or energy crisis? -> possibly less demand.

The list goes on and on.
But you know: over time there is still plenty of demand for all vehicles Tesla produces.

However, if Tesla has to sit around keeping inventory until their production gets sold out at higher pricing, this has financial downsides:
- time between production and delivery should be as short as possible, this way Tesla can receive money from the customer before paying suppliers;
- higher inventory has a cost associated with it, to keep these cars in stock/neat/charged/not degrading/etc
- ...

I think we can agree holding on to built cars carries a cost and risk.

Imagine Tesla has a smart team looking at the numbers and comparing the costs associated with holding on to inventory longer on the one end to dropping prices and increasing immediate demand (I should say: increasing demand even more) so the cars get delivered quicker on the other hand. Nobody disagrees that lowering prices creates more demand, but they do disagree with you that Tesla MUST drop prices or else they cannot sell all their production.

The current inflation/recession fears have created less demand than usual, that may be true. But the second the FED starts cutting rates and the market turns around, their will be more demand. It swings in roundabouts.

By lowering prices and shortening the amount of time between production and delivery, Tesla is:
- decreasing costs of holding on to inventory;
- sticking it to the competition that cannot profitably make BEV's;
- increasing the demand for their vehicles to a much higher degree than their increased production, increasing brand awareness;
- passing on cost savings (due to lower COGS) to the customer;
- receiving a lot of market data regarding demand in different regions and regarding certain models. All this data is considered when making price adjustments (per model, per region, at certain times).

So please don't act like Tesla is worried and dropping prices in the hope to be able to sell their vehicles. They're doing so because the profits are similar but they get a lot smoother delivery process going on, without having to deal with the wave and a lot of "bumps in the road" (demand pockets/bubbles). Clever pricing smooths out a lot of these issues at nearly no cost.

Many are also not considering that since Berlin is ramping, the Berlin models for example can be sold at lower prices in Europe with the same profit, since the transport/import costs from Shanghai to EU are massive compared to production of the same model (Y currently) in the EU. Within 48 hours of rolling of the line the Berlin car can be anywhere in the EU. Shanghai takes weeks and at much higher cost.

TL;DR: stop with the doom and gloom. There is no demand issue. Tesla is just optimizing pricing vs delivery waves/demand per region in a clever way.

And IF somehow Tesla is forced to drop pricing due to not enough demand, this is temporary due to macro-economic issues and the same goes for all other automakers too. This cannot be held against Tesla compared to its competitors.

I said all I have to say on this. Now please don't repeat your arguments without backing it up with facts, not speculation.

 

[Gigapress]

I will echo James Douma's comments on the price cuts and advertising question.

Tesla's got insane amounts of information. They have more information than OEMs tend to have, right, because they have all the way down to the customer interface. I think they probably understand their business really well, you know, what it takes to incentivize people to buy cars and where they're doing well, where they're not doing well, what people do and don't understand. I don't think they have perfect knowledge, but I think as the car business goes I think they're pretty well informed and externally I haven't seen sources of information which I think remotely rival the information Tesla has to work with when making these decisions. So I'm super reluctant to second-guess them. [Conversation continues but I didn't want take time to quote it all]

Linked to relevant timestamp. Whole interview is top-notch, as usual.

Let's unpack what Mr. Douma meant. Tesla has detailed, comprehensive data on everything that could possibly be relevant and measurable for making this decision. For example:

• Usage stats for the Tesla app and Tesla.com, such as page access requests, average time spent browsing, how often people play with the vehicle configurators and what different options they select, etc.
• What new refreshes or models are in the pipeline and when they intend to reveal them and begin production
• Foot traffic statistics at the showrooms
• Detailed geographic location data on all of these measures (except for the internet stuff for the minority of people using VPNs)
• How Supercharger and Service Center construction in an area subsequently affects demand
• Amount of inventory in every delivery center on the planet
• Test drive impressions and customer comments
• Surveys of employees at showrooms regarding customer questions and interests
• Initial quality complaints upon delivery
• Frequency of buying upsells like paint or FSD
• Mix of SR/LR/P variants
• Referral code usage
• Repeat purchase data for each customer or household
• Changes following posts on Twitter, major product reveal events on Youtube, etc.

I would be surprised if Tesla doesn't have at least one person (but probably a whole team) whose full-time job is to study this stuff and develop automated analysis tools to integrate all this data into insights. Like James, I personally trust Tesla to make the best decisions possible with this treasure trove of relevant information that no other OEM has due to lacking this degree of vertical integration and software prowess. Tesla would have to be incredibly incompetent at marketing and business analysis not to outperform all of us external analysts on strategizing this.

----------------------

Furthermore, Elon has said multiple times in the last few months that automotive demand has been weakening globally, for Tesla and the whole industry, and has said that higher rising interest rates are the main problem. We also can see signs of this in the growing inventory levels at dealerships of other OEMs. The credit market is almost certainly a major factor driving the recent price cuts.

Indeed, car sales for the whole industry remain significantly lower than the in years past. For instance, in the US, sales are depressed around 10-20% relative to 2020 and early 2021, which was already much lower than the peak years of 2017-2019. Tesla is selling into tough macros for automotive. Maybe this is due to lingering supply chain shortages, but maybe it's demand too.

Still, there's yet more nuance to these pricing and marketing decisions.

1) Tesla has also been saying they're finding that the sensitivity to price has been very high, which aligns with the expectations of fundamental microeconomic theory for expensive purchases that constitute a large portion of the average customer's overall household budget. Price cuts are the simplest and most effective way for Tesla to drive order flow in the short term. At Investor Day and the Q4 earnings call, they emphasized the dominant importance of price and affordability, and said that the primary limiting factor is affordability.

Elon Musk: “The most common question we've been getting from investors is about demand. Thus far -- so I want to put that concern to rest. Thus far in January, we've seen the strongest orders year-to-date than ever in our history. We currently are seeing orders at almost twice the rate of production. So I mean, that -- it's hard to say whether that will continue twice the rate of production, but the orders are high. And we've actually raised the Model Y price a little bit in response to that. So we think demand will be good despite probably a contraction in the automotive market as a whole. So basically, price really matters. I think there's just a vast number of people that want to buy a Tesla car but can't afford it.”

Tom Zhu: “…earlier this year we had a price adjustment. After that we generated huge demand, more than we can produce, really, and as Elon said, as long as you’re offering a product value at an affordable price you don’t have to worry about demand.”

Elon Musk: “The desire for people to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla, not do they want a Tesla…For the vast majority of people it is affordability-driven…One of the things we weren’t sure about was the price elasticity of demand for Teslas. So, like, as we lower the price how much does demand increase? And we found that even small changes in the price have a big effect on demand. Very big. So that was a good thing to learn. … I mean, demand for our vehicles in terms of desire to own them may as well be infinite; it’s indistinguishable from infinite at this point…So as you make the car more affordable, we’ll have demand go crazy basically. … I cannot emphasize enough, the hard part is building the cars.”

2) In line with the affordability consideration, gas price fluctuations appear to strongly influence short-term interest in buying Tesla cars as well as other EVs, hybrids and other eco vehicle options. Gas prices have fallen majorly since the peak in summer of 2022, which was when Tesla vehicle demand skyrocketed and the company hiked prices to record highs to stave of the stampede of orders pushing the backlogs to untenable lengths. Below is a chart I made with data from the US Energy Information Administration. Gas prices have returned to 2021 levels and so have Tesla's average vehicle prices, roughly speaking. Granted, correlation alone does not imply causation, and even if there is causation here it's probably not the only significant factor, but I'm confident the decline in fuel prices has played a meaningful role. I don't understand why this isn't getting more attention in the conversation these days.

3) Tesla's demand curve is not static because it's increasing over time. The positive feedback loop of Tesla's word of mouth sales force continually drives more interest in the products even if Tesla does absolutely nothing to advertise. The more Teslas Tesla sells, the more Teslas Tesla sells. This means that simple analysis like "Tesla needs to drop prices to sell more cars as production volume increases" is not necessarily true, at least until Tesla is saturating each market segment they currently serve. The customers are educating other future customers and providing social proof that the cars are good.


4) There's big-picture branding, marketing and competitive positioning considerations. Tesla's brand is partially built around *not* doing traditional advertising. Almost everyone bought one either because of independent research or someone telling them about it. I have seen multiple people's eyes light up with surprise and intrigue when I've told them that last year Tesla was the top-selling and most-profitable luxury car brand in America despite not paying for a single ad. That's the kind of fact that makes people think "hmm, there must be something special going on here and I want to know more". Everyone knows that ads are often misleading and deceptive, but winning on sales without them is a strong signal that can't be faked. This narrative is spoiled if Tesla starts paying for ads, and it would open up new possibilities for negative attacks on demand fears whenever Tesla increases the amount of advertising.

This lack of paid advertising also makes Tesla ownership kind of feel like being in a club of special people "in the know" who either are up-to-date on the latest technology and smart enough to recognize something good when they find it, or they have cool friends who explained it to them and gave test rides. Marketing primarily via cult proselytization actually is a viable strategy for a business like Tesla.

IMO, Tesla will soon be seen as "Best Value" automotive brand. Not advertising and specifically stating that dollars saved on advertising are put into increasing the value of the car will contribute heavily into solidifying that brand image.

I think Tesla isn't too concerned about short-term cash flow. The mission is the focus and that mainly depends on mass production in the 2030s and beyond. Now that the company has no financial stress and a very well capitalized balance sheet, the priority needs to be targeting the brand positioning for the future. The mission demands optimization for the long game. A few billion dollars around the margins in the next few years is just a rounding error in comparison to the impact of improving performance in the 2030s and 40s.


5) Price cuts themselves generate attention for Tesla that's tantamount to advertising.

6) Expectations of imminent refreshes of Model 3 may be influencing short-term demand

7) I've saved the best for last: Tesla already has a massive social media presence, especially on Twitter, with Tesla's account having 20M followers and Elon's having 135M followers, and this lets them advertise for free. Tesla's social media presence is *elite* among major consumer brands and it's more than an order of magnitude ahead of other automotive OEMs.

Of the top 50 accounts on Twitter, almost all of them are famous individuals, not organizations. Elon's account is now #1, having recently passed Barack Obama's account. For the few organizations in the top 50, it's mainly sports teams/leagues, social networks, and top news media. Beyond these particular industries, Tesla is one of the most followed organizations of any kind on Twitter and is getting closer to this elite level with every passing year. In fact, I was unable to find any companies selling physical goods to consumers that have more Twitter presence than Tesla. This is especially remarkable considering how few customers Tesla actually has so far compared to companies like Walmart, Nike, Starbucks or McDonald's. Watch what happens as time goes on and Tesla really goes mainstream and is putting up Toyota-like sales numbers.

Tesla also probably benefits indirectly from SpaceX driving traffic and attention to Tesla's tweets. SpaceX has 29M followers.

Some of this, of course, depends on which social media platform each company prioritizes. For example, Apple has an order of magnitude more subscribers and views on Youtube than Tesla has. Many companies are more active on Facebook than Tesla is. Nevertheless, Twitter is the biggest platform for businesses to update the public on their products and services, and you only need traction on one platform anyway, because people will share compelling content on other platforms and in real life. Facebook, Google and Youtube get more advertising revenue but for direct engagement I'm pretty sure Twitter is #1. Tesla's account garners about 1-2M views on normal tweets and every few days exceeds 10M on more notable tweets like the Cybertruck crash test demo video from April Fool's Day. This is approximately the same view count as President Biden's tweets. In contrast, Mercedes-Benz rarely gets more than 100k views on a tweet at best.

So, Tesla already is advertising and educating consumers on the products. The question is actually whether Tesla should spend money on bribing other companies to promote the ads beyond what comes from subscribed followers and the organic interest generated by the Twitter & Youtube suggestion algorithms. I think competitors pay for ads fundamentally because they and their products are not intrinsically interesting enough per se, but Tesla does not have this limitation.

 

[CorneliusXX]

Low-interest financing for qualified customers. Match the FED up for down. @CorneliusXX @unk45 thoughts?

It's a hard one to know. I worked in auto finance back in the early 2010s and we used to run subvention programs (cheap interest rate deals) for OEMs that didn't have their own captive finance arms in Australia. We certainly saw a big uptick in auto finance applications for those vehicles while the program was running. It is safe to say it lead to more sales (otherwise the OEM wouldn't offer them) but how much of an increase is unknown to me as some of the increase could be attributable to all the finance applications needing to go through my bank rather than being spread across the finance industry.

The way the cheap rate deal worked in the background is that the OEM would fix the price the dealer could sell the vehicle for (so the dealer couldn't just gouge out the savings the OEM was trying to achieve for the customer), we would also tell the OEM we need a (e.g. 6%) return on the money we lend. Then if the loan was written at (e.g. 1%) to the customer we would calculate the PV of the difference in monthly payment between a 6% loan and a 1% loan and send the bill to the OEM - so we achieved 6% over the life of the loan.

• Why would the OEM pay a financier rather than just discount the car the same amount - because it supposedly keeps the used price higher for the same model sold in earlier years - therefore not upsetting earlier buyers and because the OEM has to offload all their lease returns from earlier years' leases that are coming to an end (if the used price drops the OEM could make a loss on the sale of the lease return if it is below the residual value they had booked in their financials)
• Because of this I always saw it as coming from a position of weakness for the OEM as they had to not only effectively cut their margins by paying us the difference, but they also were paying us our profit - so it (arguably) has more of an impact on cash for the OEM than just cutting the purchase price (this potentially could be made up on used sales, customer goodwill, etc - but I didn't have access to that sort of information). That said, the OEMs wouldn't run the deals if they thought there were better ways to make money.
• OEMs also had to anticipate just how much of a rate drop would be needed to get the cars out the door, the larger the differential to the market rate the more it costs them
• I usually saw subvention programs being used to clear out end of year inventory - so the OEM was managing inventory, appeasing their dealers, trying to dress up their sales volumes or trying to smooth out the Q1 seasonal lull in vehicle purchases.

For Tesla they would need to do the same thing with a 3rd party financier, use some of their cash hoard to fund the loans directly, or use their line of credit/securitisation platform.

• The same mechanics would be in play if they used a 3rd party financier and margins would likely be hit the same way as other OEMs - however we are not in an "end of year clearout" scenario that is limited to a few vehicles, the lower rates would likely need to apply to our bread and butter sales. Or we would need to draw some arbitrary line to limit who got the benefit. If it was only high credit score customers they probably already have the cash to buy the vehicle anyway and have access to the best deals already going around.
• If Tesla funded it in house the volume would be somewhat limited (we wouldn't want Tesla to drain their cash pile too much at the start of a recession while having big CapEx plans), and that money could well be earning more being invested in bonds and other money market funds while rates are high.
• Tesla also has its line of credit and securitisation platform it could use but there is always a tradeoff somewhere - if they write cheap loans to securitise later they would likely end up having to throw in additional collateral or raise less debt against them.

So long story short, it could probably boost sales (and sale prices) but I don't know if it would make the financial statements look any better. I wouldn't be against them running some tests to see the incremental impact on demand based on reduced interest rates. If a relatively small rate cut induced enough demand then Tesla might find a sweet spot. There will always be some incremental demand increase from offering a better deal.

My personal opinion is that, on average, buyers are a bit scared given their mortgage, food, bills are all going up. It's hard to compete against that with a few bucks off the car loan when they could just hold on to their old car for another year or two and see how the economy pans out (or buy a much cheaper vehicle in the interim).

Here is an example of the impact to Tesla if they offer low rate deals via a 3rd party financier compared to dropping the purchase price. One where the customer gets a real benefit on monthly payments and one where the customer is neutral on monthly payments. It also assumes Tesla is on risk for the residual value as they tend to want to control used vehicle sales.

 

[Papafox]

TSLA Chart above

QQQ chart above (chart was gorked in after-hours trading and so this is the fallback image)

Friday's TSLA trading was a breath of fresh air after Thursday's nearly 10% fall. The alternative uptick rule was in effect, (shorts had their hands tied), and the market makers were busy doing their usual end of week adjustments to maximize profits from option sales. For these reasons it's too soon to conclude the immediate bottom is in but there is hope.

Percent of selling by shorts was moderate-to-low at 49%. Still, the manipulations were apparent as TSLA plateaued at 165 shortly after noon and then as excursions above 165 were brought down to 165 multiple times and especially for the close. I'd say that TSLA looked to be ready to climb higher than 165 on Friday but the option sellers had over ideas.

What matters most is where TSLA goes from here. The Q1 earnings results matched analyst expectations, but the new reality of Tesla willing to trade margins for volume splits investors into two camps:

The Dead Money Camp
With a strong possibility of declining Auto Gross Margins in future quarters, this camp consists of traditional analysts and fund managers who use AGM and deliveries to compute profits and then use P/E (profit to earnings ratio) plus a growth component to compute the value of the stock. These types are more concerned about TSLA in the future than the recent analyst downgrades suggest. Analysts are for the most part chickens and they'll let someone else stick their neck out while they make predictions that respond to the stock price. In their mind, if AGMs are decreasing, so will the P/E ratio, and for a long time, possibly years, money invested in TSLA will produce no positive returns. They're ready to follow the herd by lowering their price targets to move closer to the stock price any time Tesla lowers vehicle prices again or delivers a smaller profit in an ER.

The Brilliant Future Camp
The other extreme is entities that see Tesla's enormous lead in manufacturing plus EV and battery technologies. They typically realize that Full Self Driving will eventually become a significant marketable asset. They follow Munro and Associates and realize that the $25K EV of the future will be coming in a few years and with decent margins. The lead here is ARKK Innovations, which has recently given TSLA a $2000 price target for 2027. You also have more traditional analysts such as Alex Potter with his $300/share target. These optimists see Tesla's future as very bright with a short to medium term hurdle as buyers endure higher interest rates plus fear of a recession.

Inevitable Volatility
With two completely different expectations for TSLA's valuation, you can expect increased volatility. When the stock price is moving down, sentiment gravitates to the deal money camp, and when the stock price is rising, sentiment changes into FOMO and a more serious look at the brilliant future camp thesis.

Factors Favoring the Dead Money Camp
* Every Tesla vehicle price cut leads to recomputed P/E ratios and recomputed lower price targets that more closely match the resulting TSLA price decline
* Every AGM decrease in an ER
* Projections of Tesla delivering less than 1.8-2.0 million vehicles in 2023
* Tesla stock price decreases for all reasons
* Continued interest rate increases by the Fed (because this means more consumer fear as well as higher financing costs for new vehicles)
* A recession (because people buy fewer vehicles in recessions)
* Anything that gives the impression that TSLA is toxic (Elon over-the-top comments, stock sales by Elon, etc.)

Factors Favoring the Brilliant Future Camp
* Higher than expected Tesla vehicle deliveries
* Any price increases or a long period of time before next price cuts
* Growing Tesla Energy revenues and margins
* Factors that show that dropping AGMs will not necessarily drop profits proportionally. Tesla Energy contributions is one input, realizing approx $600 million in deferred revenue in 2023 (including deferred FSD income) is another.
* Cybertruck deliveries beginning on time (before end of Sept.)
* Progress with 4680 cell production by Tesla
* Progress realizing IRA payments for Tesla-produced batteries and cells
* Interest rates topping out and then declining
* A long or sizeable recession being avoided by Darth Powell cutting rates soon enough

Factors to Watch
* Progress with FSD. I am a beta tester and see a noticeable improvement with Ver. 11, but with exceptions. Some of the exceptions include navigation regressions, but I see these as manageable issues while the big issues are tackled. I'll report perception changes in my experience going forward.
* Interest rates and the economy
* Pace of deliveries
* Speed at which 4680 cell production is speeding up

Special Considerations for Retired TSLA Investors
* I need revenue from my IRA to continue my retirement. The problem is that I've been invested only in TSLA and we could see a potentially-sizeable dip between now and the time the economy starts improving or FSD starts showing its inevitable promise. My solution has been to over time increase my cash or cash-equivalent balance so that I am not in need of selling any Tesla holdings for the next three years. The majority of my Tesla investment will remain. For deep in the money call options, I will be concentrating on 50-strike calls with expiration dates in 2025.

Discussion
If you wish to discuss these thoughts, please take discussion to the main investors' thread

Percent of selling tagged to shorts fell to 49% On Friday, suggesting a noticeable decline in manipulations

Yields on 10 yr. treasury bonds fell to about 3.54% on Friday.

Max pain Friday morning was 170. Looking closer, you can see that 165 was neutral but ever so slightly put-dominated, 167.50 was barely call-dominated, and 170 and above were call-dominated. For these reasons, 165 looked like a profit-enhancing choice for the options sellers and the daily trading showed the fingerprints of their directing TSLA to 165 on Friday.

Friday's options volumes

We continue to see close proximity with Friday closing prices vs. max pain or effective max pain. The current economic environment provides the manipulators with a fear-factor for pushing lower, and Tesla's long-term strengths provides an incentive needed for pushing higher. Mostly, the MMs work at capping and pushing lower. Here's a chart with the two red dots for "effective max pain" included. As you can see, with one exception the MMs have been nailing the most profitable end of week closing price. This is not coincidence. Chart courtesy of @JimS .

For this coming Friday, max pain is once again 170.

If TSLA could level off for a couple days, the lower bollinger band could catch up and provide some support again.

For the week, TSLA closed at 165.08, down 19.92 from the previous Friday's 185.00. It's been a fatiguing week. Be sure to use the weekend to recharge with the ones you love.

Conditions:
* Dow up 22 (0.07%)
* NASDAQ up 13 (0.11%)
* SPY up 0 (0.08%)
* TSLA 165.08, up 2.09 (1.28%)
* TSLA volume 123.5M shares
* Oil 77.87
* IV 47.3, 0%
* Max Pain 170 for both 4/21 and 4/28
* Percent of TSLA selling tagged to shorts: 49%