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Moderators' Choice: Posts of Particular Merit

Discussion in 'TSLA Investor Discussions' started by AudubonB, Dec 31, 2016.

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  1. KarenRei

    KarenRei ᴉǝɹuǝɹɐʞ

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    #61 KarenRei, Jan 21, 2020
    Last edited by a moderator: Jan 31, 2020
    Third Row Podcast summary:
    • Interview at Gene Wilder's old house. Has a solar roof now.
    • Musk initially thought Twitter was stupid, so he deleted his account. Someone else started tweeting in his name, saying crazy things. Another person convinced him that Twitter is a good way to get your message out, so he figured, if someone's going to say crazy things in his name, it should be him ;)
    • Not an investor. Only invests in his own companies, which is quite unusual. Funds new companies with loans against Tesla and SpaceX - about $1B of debt on them. You see people on Forbes and whatnot acting like he has the stock and the cash, and that "somehow he's just sitting on the cash, doing nothing, hording resources. No, it's not like that; I mean, I could just give the government the stock and they could run things, but historically, they're not good at that."
    • Capital allocation ("may get me in trouble"): "What you actually care about is the responsiveness of the feedback loops to maximizing the happiness of the population. If more resources are controlled by entities that have poor response in their feedback loops, such as a monopoly or small oligopoly, or in the limit, the monopolistic corporation to its limit is the government. That's not to say that people who work for the government is bad; it's just that if those people are put in a better operating system situation, the outcome will be much better"
    • "You want to have a competitive situation where it's truly competitive and companies aren't gaming the situation, and where the rules are set correctly, and you need to be on the alert for regulatory capture, where in fact the referees are in fact controlled by the players. The players should not control the referees. Which can happen. That happened for example with the zero emission vehicle mandate in California, where California was really strict on EVs, but the car companies managed to - frankly in my view - trick the regulators into thinking, 'you don't need to be so strict on EVs, fuel cells are the future'. But fuel cells are many years away - forever - so they let up the rules, GM recalled the EV1, and crushed them against the wishes of the owners."
    • "The owners of the EV1 - which wasn't that great of a car - the owners held a candlelit vigil at the junkyard where the cars were crushed. Like a prisoner being executed. When was the last time you even heard of that for a product? Listen man, they're not doing that for any other GM product! Have you thought about doing the EV2? It's sometimes hard to get through to these guys."
    • Talks more about how oligopolies tend to form, and how it's harmful. Mentions the candy oligopoly. "And dog food!" "You think you're buying from different companies, but it all funnels up to just like three companies. You need to have a good competitive forcing function - if a company makes worse products for the consumer, then it should have less prosperity than a company that makes better products for the consumer:"
    • "When I was in high school, I thought I'd most likely be doing physics at a particle accelerator ... want to figure out the nature of the universe. But things went along, and the Supercolliding Superconductor got cancelled, and I was like, whoa... what if I was working at a place like that and it got cancelled?"
    • "I had an existential crisis when I was 12 years old. What's the world about, what's the meaning of existence? So I made the mistake of reading the Nietzsche, and was like... whoa... don't do that... not until later... he's got issues. But then I read the Hitchhiker's Guide to the Galaxy by Douglas Adams, which is actually quite a good book on philosophy. And we don't really know what the answer.. the universe is the answer, but the issue is, what are the questions we should be asking to understand the nature of the universe. And the degree that we expand the scope and scale of consciousness, the better we'll be able to ask the questions to understand why we're here and what it's all about. So to take the set of actions that are most likely to result in us understanding what questions to ask about the nature of the universe."
    • "... things that I thought would be... I thought this was not a profound insight, but rather an obvious one... the internet would fundamentally change humanity, as humanity would become more of a superorganism. The internet is like a nervous system. Now suddenly any part of the human organism anywhere can have access to all the information, instantly. Imagine if you didn't have a nervous system, your fingers wouldn't know what's going on, your toes wouldn't know what's going on... you'd have to do it by diffusion. And the way information used to work was by diffusion."
    • Was on the internet early because he was in the physics community. But back then it was all text and not user-friendly.
    • "Sustainable energy was actually something I thought was important before the environmental issues became as obvious as they are. Simply because if you mine and burn hydrocarbons, you're going to run out of them. It's not like mining metals; we recycle steel and aluminum, it's not a change in energy stage. With fossil fuels,you're taking something from a high energy state, you're burning it to to a low energy state like CO2 which is extremely stable. We won't run out of metals, but we will run out of mined hydrocarbons. And then necessarily, if you have billions, ultimately trillions of tonnes of hydrocarbons buried deep underground, and you move them from underground into the oceans and atmosphere, you will have a change in the chemistry of the surface. Obviously. Then there's a certain probability associated with 'how bad will that be?'. And the range of possibilities goes from 'mildly bad' to 'extremely bad'. Well, why would you run that experiment, ever? Especially when you have to go to sustainable energy anyway. Why would you run that experiment? It's the maddest thing I've ever heard."
    • "The obvious thing is to have a carbon tax. It's a no-brainer. 90% of economists would say this. Markets work well if you have the right price on things. If you have a price of zero... well, people behave accordingly."
    • "I graduated from UPenn... physics, economics... then had to road trip to Stanford with Robin Ren... he grew up in Shanghai, yeah, very smart guy. He ended up continuing at Standard, while I ended up going on deferment a couple days into the semester. But I was going to be studying physics of high energy-density capacitors for electric vehicles. ... I'd worked at a company called Pinnacle Research that did high energy density capacitors. I was going to make a solid state version of what they were doing, which... it's going to get very complicated from a technical standpoint... they were using a ruthenium tantalum oxide... ruthenium is extremely rare and expensive, so you can't scale that... so can you find a substitute for ruthenium? But they were able to get to energy densities of a lead-acid battery with a very high power density."
    • "With the advent of high energy lithium ion batteries, a capacitor is not the right path. ... It's unnecessary. I think it's possible, but it's unnecessary at this point"
    • Dry electrodes are a big deal, a much bigger deal than they seem. But they're not the only thing they acquired Maxwell for.
    • Getting the first wholly foreign-owned factory: China initially demanded a partnership. Tesla pointed out that they're small and young, that major Chinese automakers already had existing foreign partners, that wholly Chinese-owned companies like Faraday operated in the US, etc, and talked to them for several years; eventually China decided to change the law.
    • Capex: "I think the big difference is that we're way less dumb than we were" ;) Shanghai: "Designed out as much of the foolishness as we could" Much simpler and much better implemented. Suppliers in China more efficient.
    • More output from lines in the US as well. Model 3 body line only ever designed to do 5k cars per week; now doing 7k. Turned off a lot of unnecessary things to get 40% more production, while decreasing costs and improving quality.
    • Model 3 body line in China much simpler and easier to understand. Got rid of "unnecessary movement"
    • Asked about the biggest complaint about the Ashlee Vance book: That it portrayed him as firing talented people without reason. That people found that a person was no longer there and assumed they were fired with no reason.
    Personal backstory...
    • Talked about when he moved to Canada with $2k and a suitcase of books at age 17. Stayed at a hostel for a couple days then took a Greyhound across the country to Swift Current, Saskatchewan to a cousin's son's wheat farm to work (cleaning silos, did a barn raising, etc etc). On the way, the bus company accidentally left his clothes at a little town en route. ;)
    • Got back on the bus and went to Vancouver where an uncle was in the lumber industry making equipment. Worked chainsawing logs and cleaning out boiler rooms where they boil the pulp. Had to crawl through a steel tunnel with only one entrance / exit in a hazmat suit and shovel steaming sand and mulch out of the boilers to clean them out. Really bad for the claustrophobic, and you had limited time before you had to leave or risk hyperthermia. You have to block your only exit with what you're shoveling, passing the material off to the next person to shovel outside. Extremely dangerous; if you got stuck in there, it'd be extremely hard to get you out. But he did it because it was the best paying job he could get.
    • Applied for college at Queens University and UPenn. College in Canada is affordable, but he was really worried about being able to afford UPenn. But he got excellent scholarships, which allowed him to go there and do physics / economics (where he was studying new supercapacitors for electric cars).
    • Took a road trip to Stanford in '95, and realized the internet was about to explode big. Realized he could always go back to electric cars, but the internet was not going to wait. Put Stanford on deferrment and started Zip2.
    • Zip2 started off with maps & whitepages - believes it was the live-maps site on the internet. Had patents on them, which have since lasped. Wrote the whole initial codebase himself, since there wasn't anyone else. When Kimbal joined with $5k, that was a lot. When the website was broken, it was likely because he was compiling code, because there was only one computer. Had to code at night so as not to mess them up. They were basically squatters in the office of an ISP (470 Sherman Way); the landlord was out of the country. ;) Lived in there (had a couch with a futon, minifridge with a cooking stove on it), cooked pasta and other stuff that's cheap as dirt, showered at the YMCA. Sometimes ate at the local Jack-in-the-Box; Kimbal still shudders thinking about their food ;) (the place had problems with food poisoning).
    • Kimbal didn't do any coding, but he did a little html. Elon coded at night.
    • Almost nobody he talked with back then understood the internet. Even on Sand Hill Road - most of the VCs had never used the internet. Were really bored. Who's made money on the internet? Nobody! Attitudes really changed when Netscape went public.
    • He had tried getting a job at Netscape, at "the only internet company" that does software, even hung out in the lobby trying to get their attention. Led to him starting his own internet company.
    • Their first investor gave $3M for 60% of the company. Which he thought was crazy - they're going to give us $3M for what's effectively nothing? They had like 5 people ;) But hired a lot of people, and attracted interest of Knight-Ridder, etc which became big customers. Went from starving with a broken car (wheel had literally fallen off) to actually being able to function normally.
    • "I don't know about it being the good 'ol days - we were just trying to be able to stay in the country!" Kimbal was there illegally. Tried to get a visa, but it was impossible. "We had to break the news to the VC firms [we were courting] that we don't have a car, we don't have an apartment, and we're illegal." Musk: "No, *you* were illegal!" (laughter) Musk: "I was legal but my visa was going to run out in two years." But the VCs were great, the lead investor's wife was an immigrant from Canada, and they helped them take care of their status, gave them a salary so they could actually get a car, etc.
    • Morning they were supposed to present to the partners, Kimbal went to Toronto to their mother, and was returning and border control wouldn't let him fly back. So a friend picked him up at the airport and drove him to the Buffalo border, and used the excuse that they were going to see the David Letterman Show to get across.
    • Kimbal remembers Elon pitching his involvement in Zip2 to him as to work with Yellowpages companies. Elon remembers it differently - "I didn't even know any yellowpages companies!" They actually tried at one point, pointing out that they'd just put their books online, it'd cost them very little, they'd still own all the company, and the companies were super-arrogant. One picked up a book and literally threw it at Kimbal, saying, "You actually think you're going to replace this?" Thrown out of the office.
    • They had expected the entrenched players to be their biggest customers, but it turned out it was the newspapers were better partners. Their ad revenue was being eaten away by Craigslist and seemed to have a better understanding of how important bringing their business model online was.
    • The big thing they did differently with mapping that hadn't been done before was live vector-based mapping. That previously, any map on the internet was just a static image, while their maps were "live". It seems so absolutely normal today, but back then it seemed like an impossible thing. They had to cheat and use Java applets, but it let them transfer vector data rather than images, which made it super-fast.
    • Made a lot of tools that made it easier to build websites, which are now abundant, but which were rare then.
    • Used Navtech data, being built for Hertz in the pre-Garmin data. Took that data, which they got for free (Navtech spent $300M developing it), with the only contract terms for it being that if they ever made money, they'd have to pay a percentage.
    • They had a more advanced search engine than Yahoo, which dominated at the time, but it was being misused in his opinion, only locked up in these media companies. Very frustrating to Elon. But then came Compaq that was acquiring a bunch of small companies to create a competitor to Yahoo, which at the time was seen as an unstoppable juggernaut.
    • Elon's frustration with having the tech he'd built up not be able to be used by regular people is what pushed him into another internet startup (X.com, later Paypal) rather than going straight to something like SpaceX or Tesla. Had to startup something that was low bandwidth, since most people were on dialup, so things like video were right out. But there was a huge gap in one low-bandwidth field, which was money transfer.
    • Early days of Paypal, there were some banks trying to compete. Ebay had Billpoint too. In the early days of Ebay they had an issue with trying to get payment for stuff; people were literally mailing checks to each other. Super-slow transactions.
    • Main other competition was Confinity; crazy amount of talent between both X.com and Confinity, and many of the people in the two went on to start up major internet companies, like Yelp and Youtube. Ultimately decided it'd be best to merge the two - did so and raised $100M in the space of 3 weeks - luckily immediately before the Dotcom crash. Merged company was initially called X.com, but later changed it to their main product, Paypal.
    • Musk still thinks that Paypal should have focused more on becoming a full-featured bank, not just an online purchased system. Their main bottlenecks and costs were where they had to connect to the existing banking system; the more that they would have kept people within their ecosystem, the more profitable it would have been for them, and the more it would have strangled existing banks, becoming a financial juggernaut. But Paypal never really built an ecosystem, just a payment system. Musk was vetoed; what he was proposing sounded risky, at a time when internet companies were dropping like flies, while Paypal (as a payment system) was a straightforward product.
    • With Paypal sticking to a relatively straightforward, "boring" product, after it was acquired, most of the original talent lost interest and moved on to other things (which is why so many companies spun off of the "Paypal Mafia" as they're nicknamed). It's almost like all that market cap still exists, but it's spread out into all these other companies.
    • When they were starting Tesla, they were inspired to be the GM of the 21st century. 4 years later, GM went bankrupt. ;)
    • Supports realtime direct democracy; doesn't like how industries write laws that entrench their position, and laws that are too long for even the people passing them to understand them, let alone the general public. Thinks it should be easier to remove laws than impose them.
    • Got a near-death case of malaria in January 2001 during a December vacation to South Africa with Kimbal. Used to go out into the bush often, never took malaria tablets. Did that time. Got back to the US, and couldn't figure out what was wrong with Elon. Their uncle, a doctor in South Africa, insisted it was malaria, but Elon and Kimbal dismissed that at first.
    • Maye sat next to his bed for five days with him out of it; he was yellow. She had to get him pajamas during that time. She knew he was starting to recover when he suddenly realized, "So... there's bunnies on my pajamas?" He lost 50 pounds during his illness, and it took six months to get back to normal.
    • During his recovery he was thinking a lot about what to do next. Considering something related to space. "If someone told us in 1969 we'd not be back in the moon in 2020... you might have been punched, it's like, what's wrong with you, it's so insultingly rude to the future of humanity." Went on NASA's website to figure out when it was currently being planned to send people to Mars... and found nothing. He later found out it was official NASA policy to not talk about it. Bush had asked for a plan to send people to Mars, and they came back with a $500B plan, which was political suicide, so NASA was directed to not talk about manned Mars missions. According to what Elon was told when he inquired about it. This inspired his "Mars Oasis" mission idea, where he wanted to send a mini-greenhouse to Mars to inspire a renewed interest in Mars settlement.
    • Went to Russia in 2001 to try to buy some ICBMs (SS-18s being decommissioned) to launch a mission, but they kept raising the prices. He could afford $9M, but not $20, and he had to buy two, because if one failed, his failed project would conversely have a net negative impact. Realized that if they were going to rip him off this much and keep changing the terms before he even signed on a deal, that they probably were going to rip him off even more after the fact.
    • Frustration with how ridiculous and in general prohibitive rocket costs around the world were forced his hand into trying to lower them; it was clear that even had his mission been successful, it would not have a material impact on leading to civilization on Mars, as it would remain fundamentally unaffordable. And the rocket technology was getting better; in many ways, fundamentally it was getting worse.
    • Started SpaceX in 2002. Thought he had a 10% chance of success. There had been many attempts to start private rocket companies; they all failed. It was a joke in the industry - how do you make a small fortune in the rocket industry? Start with a large one. And the fact that Musk was from the tech industry made him a punching bag. He was jokingly referred to as "internet guy". Found it very hard to recruit actual talent; few people wanted to leave a secure job at Boeing or Lockheed or whatnot to a company that was considered likely to fail, which is what led to him becoming chief engineer himself. And he credits his learning curve to being a major contributor to their first three launches failing.
    • Shared an anecdote of one of the early launches, with an Air Force Academy payload. These people poured their heart and soul into it, but the rocket failed, with a fire causing an engine shutoff. But the satellite flew through the fairing onto a ballistic arc back to the island, and crashed into a shed. So they picked it up, relatively intact, and handed it back to the Air Force Academy. "We didn't lose your satellite! It may need some repair...." ;)
    • Startups really fun in the beginning. Later you get to the "chasm of doom" (for example, 2008) that you have to cross, years of grief.
    • 2003 Rosen and JB called him up and set up a lunch - initially talking about space stuff. They then transitioned to electric cars, with Elon mentioning his history working towards EVs in college, and they offered him a ride in the tzero. Musk loved it, and tried to convince AC Propulsion to commercialize it; they had no interest, as it would have taken too much work to make it into an "actual car". He really pestered them a lot. But what they wanted to make was a $70k electric Scion. Musk was like, dudes, you're not going to sell these, you'll sell like 14 of them. But he was like, "Even though this is the dumbest idea ever, I'll fund 1/10th of this. But it's going to fail! But you guys, if you're not going to fund the tzero, do you mind if I do it?" And they responded that that's fine if you and JB want to. But there's two other groups who want to do so too, you might want to team up with them. And Musk breathed a sigh of relief - oh, this one's going to be easy then! (everyone laughs) He only ever met one of the other teams, though - Eberhard's.
    • Musk considers Eberhard to be the worst person he's ever worked with. "He's literally the worst person I've ever worked with. I want to make a note of this. And I've worked with some real douchebags! Okay, to be #1 takes a lot!"
    • "His version of the story is that, out of the blue, he pitched me on starting an electric car company and convinced me to do it. Totally false. I was creating an electric car company, and Gage was like, 'Maybe you guys can team up'."
    • Jammed an AC Propulsion powertrain into an Elise. In the prototype, literally ended up just jamming it in. The whole concept was a mistake. It weighed so much more than an Elise, so it invalidated all the crash tests. The AC ran off a belt fan, so they couldn't use it anymore, so had to change the HVAC. Etc - in the end, only 6-7% of the parts were shared with the Elise, and the costs ended up being crazy.
    • In 2007, a new investor came in, and in the process conducted an audit of the company's numbers. He then told Elon, hey, the numbers that Martin is telling you about the Roadster are totally false. "What do you mean?" "It's more than twice what he's saying." "We'd have to sell it for a quarter million dollars in order to not lose money. We obviously had to fire Eberhard; there was no question about that. It turned out he had not only misled me, but had also instructed others to lie. When I say someone is like the worst person to work with... it's pretty bad."
    • "Eberhard was fired in July 2007. At the time we didn't know he'd instructed other people to lie, so we didn't know it was bad, but once he left the building, we realized he'd orchestrated this mass deception. He also claims that he invented the name Tesla Motors, which is a lie, that was created by a guy in '95. And moreover, he knows this, as we had to buy the trademark. This whole bull**** backstory."
    • Was hard to buy the trademark. Had to send Mark Tarpenning to the owner's doorstep and refuse to leave until the guy would at least come talk with them about selling the trademark. Was considering "Faraday" as a backup name. Tesla.com was even harder to get - took a decade and $10M. Cybersquatter.
    • Talks about the search for a replacement CEO, and the difficulties of the fact that nobody in Detroit knew how to run a startup, and nobody in Silicon Valley knew how to make cars. Kimbal interjects, "Tesla is a company that you tried so hard not to become CEO of!"
    • There's one joint employee between Tesla and SpaceX... apart from Elon. ;) A materials engineer. Which is how Tesla ended up using, say, inconel fuses based on SpaceX's experience.

    Mod: original can be found here: Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable
     
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  2. ReflexFunds

    ReflexFunds Active Member

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    Thoughts on what Tesla will announce on battery day in April & how Tesla’s future battery strategy will come together:
    • Use cell supply from Panasonic/LG/CATL to bridge to ramp of in-house cell production (possibly towards ~90GWh contracted from these three suppliers).
    • Announce that in-house cell production has just started (Apr-20) on a small scale (likely for Semi or Plaid Model S), with plans to ramp significantly in 2021 (potentially for all future new capacity from 2021).
    • Announce a roadmap to reach 2TWh of annual in-house battery cell+module+pack production capacity by 2030. Enough for ~20 million annual EV sales and ~750GWH annual stationary battery storage sales.

    Possible relatively short term technology breakthroughs:
    • Tesla will apply agile development to its in-house cell manufacturing as it does everything else - so flexibility for rapid upgrades and iterations of the process to accelerate cost experience curves.
    • Use Maxwell dry electrode tech to reduce manufacturing cost and footprint.
    • Maxwell dry electrode tech leads to better physical properties, in particular allowing thicker cathodes (higher cathode % per cell) & possibly new chemistries.
    • Move to use of single crystal cathodes - possibly helped by Maxwell process/other in-house R&D. This was a big part of the 1 million mile cells tested by Dahn.
    • Use very carefully selected electrolyte additives following Dahn research.
    • Highly automated manufacturing process to reduce staffing bottlenecks to production ramp.
    • Tesla Hibar designs systems for electrolyte insertion during the cell manufacturing process.
    • Combine all this with further in-house developed cell IP and possibly third party licensed tech. (Remember there are many steps in cell manufacturing and Maxwell/Hibar are only part of this)
    • Reduce cathode kg per kWh to reduce raw material cost
    • Next generation in-house module/pack lines for continued reduced cost & capex.
    • Build a huge factory to build in-house cell/pack manufacturing equipment at scale (the machine that builds the machine that builds the machine) - significantly reducing capex per GWh capacity

    Possible Longer term breakthroughs:
    • Integrated cell & pack design & manufacturing process to reduce footprint & cost.
    • Dahn lithium metal anode allows for much thinner anode, higher energy density & longer electrode life (at the expense of shorter electrolyte life).
    • Replaceable electrolyte design to extend lithium metal anode battery life. Develop Hibar machines for easy electrolyte replacement in service centres.
    • Dahn research is used to eliminate cobalt from the cathode leaving just Nickel Aluminium or Nickel Manganese.
    Note these are all just possibilities (based on acquisitions, press leaks, published scientific papers, patents & speculation):
    These various steps & incremental improvements may or may not be introduced once they have been proven ready for affordable mass manufacturing.

    Some things I thing would help accelerate and de-risk Tesla’s battery cell ramp plans:
    • Buy Panasonic’s GF1 business for cell manufacturing employee experience (who can be used to train new employees on Tesla’s cell lines) and other cell IP.
    • Buy/build Cathode powder manufacturing expertise (currently Panasonic mostly uses Sumitomo). Cathode powder is likely ~20% premium to its raw material constituents & the process can be key to cell properties.
    • Buy Nickel Sulphate & lithium carbonate/hydroxide processor expertise - this will be a huge % of cell cost & Tesla’s plans require ~10x the current Nickel sulphate & Lithium market size.
    • Buy other suppliers in the cell manufacturing chain
    Tesla cannot trust & rely on third parties to deliver such critical components of its business plan, particularly when the metals market leaders do not believe in an EV transition as aggressive as Tesla is targeting.
     
    • Informative x 5
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  3. KarenRei

    KarenRei ᴉǝɹuǝɹɐʞ

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    #63 KarenRei, Jan 31, 2020
    Last edited by a moderator: Jan 31, 2020
    Third Row Podcast Part 2 summary:
    • Big change going on in the background of Autopilot: instead of having planning, image perception, etc all being separate, they're all being combined, with all camera imagery being handled jointly rather than running image recognition, etc on each one. Big change in both quality and efficiency.
    • This is not Dojo; Dojo is about training speed. Comes out late this year or early next year.
    • Sees computer vision as being like navigation was in the 1990s - a very hard problem due to the limitations of your hardware combined with early-generation software. Expects autonomy a decade from now to feel easy like navigation is today.
    • Auto industry is used to slow rates of improvements. Still not really a car today that matches the 2012 Model S, from a price-for-capabilities standpoint.
    • The founding principles of Tesla were basically completely wrong. Notion was we'd take a Lotus Elise, put an AC Propulsion drivetrain in it, but them together, we'll have an electric car, and it'll be great! Sounds pretty easy. But the AC propulsion technology basically couldn't be industrialized. Handcrafted electronics with an analog motor controller. It'd respond either completely or not at all. It just couldn't be scaled; it would have been basically finicky super-expensive prototype cars.Ended up using basically nothing of it. And basically 7-10% of the Lotus Elise. Would have been better just to make a car from scratch.
    • But things are often like that. What matters is that you can iterate quickly and adapt.
    • Mass manufacturing difficulty is underappreciated. Only at peak made 10 or so Roadsters per week. If two got made in day, that was a good day ;)
    • Final assembly was at an old Ford dealership in Menlo Park. The "test track" was just normal driving around the area.
    • NUMMI plant was just a big box. Only broken equiment left. Some literally weren't even the scrap value. You couldn't get a scrap dealer to come take them for free. Tesla made a lot of them work, though (such as the plastic injection moulding machine, paint robots, etc). Body line had to be made from new, it was fully stripped.
    • Worked out, but it was very difficult, esp. since top suppliers wouldn't work with them, or they'd get their "D-Team". It was vertically integrate or die.
    • Tried outsourcing - battery was going to be made at a place that made BBQ grilles in Thailand. They realized this was a crazy idea, for all of the transport, how long it'd take to find out if there was a problem and iterate on it, etc etc etc. They could have ended up with 5 months of scrap inventory for a problem.
    • There's no logic to having battery packs be made of modules anymore - they plan to move away from it. The initial idea, from the Roadster days was that if something broke, you'd swap out a module, like swapping out a dead server in a server room. But it's becoming less economically reasonable of a proposition now.
    • Went through a lot of trouble designing the S pack for pack swap. But now even phones are going away from battery swap. Makes more sense just to increase the range and makes charging faster. It seems obvious now, but back then it wasn't as clear. But you still have atavism - just like Model 3 still has modules, Model S/X still have swappable batteries.
    • The structure of an organization is reflected in the structure of the production. Tesla had a module team, so Model 3 has modules (this has been restructured to just a "battery team"). And then you end up with a box in a box. Because this team wanted an enclosure, and this team wanted an enclosure, so you have a box within a box. And then on the Model 3 you have the pack, and then an underbody, a third enclosure, because the body team wants to have an enclosed body. Lots of brackets on brackets. The teams historically haven't been integrated as much as he'd like to see.
    • Building a production system is 100 times harder than a prototype. The reason that companies like Tucker died is because production is way harder than hand-building to show off.
    • "Here's a real important point that is not well appreciated, this is a point that should be advanced by short-sellers, but I've not seen it articulated - but it should be: the incumbent car companies make most of their money by selling spare parts to their existing fleet at high margins. And they sell the new cars at a de-facto zero margin or even at a loss. It's kind of like printer cartridges and razor blades: you sell the razor at a loss and the blades at a profit, or the printer at a loss and the cartridges at a profit, or video game consoles - the actual cost of say, an X-box may be $600 but you can buy it for $300-400 because they make up for it on the games that are bought. So if you're a new company, you do not have a fleet. You have no fleet from which to subsidize the sale of your new cars. This is the primary reason there has not been a successful car company startup in the United States. Most car companies have 80%, 70% of their fleet out of warranty. ... Even if they stopped selling new cars, they would still... (laughs) their profits would increase!"
    • Innovation rarely comes from insiders, who are complacent with their status; it usually takes outsiders. Such as with SpaceX: it's actually surprising how little innovation there's been in rocketry, despite SpaceX showing landing and reusing rockets many times.
    • Not very warm on Rocketlab's idea of catching boosters with a helicopter, both from logistic and economic perspectives. But still thinks it's good they're working toward reusability.
    • Earth-to-Earth: Main constraint is noise. Coming in for landing, the double sonic boom is very loud. Have to do offshore. But definitely can be done. And thinks that the economics can be made to work as well, to make it economically competitive with air travel.
    • Electric VTOL aircraft: "a lot of difficulty associated with that". You can't do them all at once, with respect to allocating the resources. It can definitely be done, but it's where's best to put your resources, which are very constrained. Not just technically, but also, it's an entirely different regulatory regime. There are no car companies that are also aircraft companies.
    • Asked if, due to the good financial health at Tesla, whether that means they can now start pumping a lot more focus on diverse R&D projects. Said it doesn't work that way. That if they know a factory that mass produces superb engineers, please let him know. It's not a money thing; there's a fundamental limit on "exceptional engineers" available.
    • Asked about how priorities are chosen. They're usually dictated by necessity or choice. What do they absolutely need to make work E.g. with Model 3, there were so many mistakes with the production process that they had to dedicate pretty much the entire team to fixing Model 3 production problems. Said that it felt like the scene in Indiana Jones where they were being chased by the giant boulder ;)
    • Biggest focus now is to get to be making cars on each continent. Its insane to be making cars in CA and shipping them to Europe and Asia. Huge expense, high capital carrying costs due to at-sea inventory, tariffs, extra chance for damage, etc. Creates a lot of costs and is hard to manage. Increases factory complexity at California to deal with all different regulatory regimes. Including LHD vs. RHD, due to some random bureaucrat a hundred years ago ;) And can't even have the same stickers, because not everyone speaks English.
    • Having more factories will really destress the company a lot and improve its economics.
    • Had to ship cars to Europe where the supplier of the headlights for Europe couldn't match rate, so they'd ship cars with US headlights and then swap them out at the port, just to keep the inventory moving.
    • The first quarter last year was a tragedy of errors. Belgium (where they were shipping the cars) went on strike! "What do to you mean, Belgium went on strike?! Okay, now what do we do???" Also mentioned the China sticker issue.
    • Ships are also a pain. Time waiting to ship, to load it... ships break down, get delayed by storms, get stuck waiting for ports, etc.
    • Tesla has had a massive uphill battle to sell cars in China, due to no subsidies (unlike local manufacturers), facing tariffs, shipping, etc. Proud of how well they did despite the barriers they were up against.
    • Cars in the US, they'd get paid by customers before having to pay suppliers, which is great for scaleup. For EU and China, it's reversed. Europe is much harder, due to the Panama canal delays. Esp. when the canal gets backed up. In the worst case they can be forced to go around Tierra del Fuego, which is a transit nightmare scenario.
    • Asked what's the best reason for choosing Berlin rather than other places in Europe: (joking) "They have the best nightclubs" (everyone laughs). Says that they they investigated numerous locations, but needed to move quickly, and Berlin allowed that. The fact that BMW had been looking to build a plant there meant that there'd already been a year's worth of environmental paperwork been done on that location for an auto plant. Made it much faster. Local and state governments were also very supportive. Close enough to Berlin that people can still live in the city and commute to the factory. Train station will be moved to where you can hop right off the train and into the factory; no need to even drive in. Goes back to joking: "GigaBerlin sounds like the name of a great night club. I'd for sure work for a company that had a great nightclub" ;)
    • Asked about the roller coaster. Still wants to do that eventually. Would just have it be modified Teslas designed to ride rails.
    • Asked whether he expected that many orders for Cybertruck. "No, no really?" ;)
    • Kimbal: "Elon told me that this was a daring design. I'm more excited about this design than any other design. And I saw it and I was just taken aback. Not by the design, just by the pure aggression that the truck.. you just stand in front of it, and it's like, "ooookay, I'm afraid". Elon: "Well, it seems that a lot of the reason that people buy trucks in the US, it's like, what's the most bad*ss truck. Like, which one's the toughest truck. Well, what's tougher than a truck? A tank. Like, a tank from the future!" ... "How do you out-tough a truck? You make a futuristic armoured-personnel carrier." ;)
    • "I wasn't sure whether nobody would buy it, or lots of people would but it. I told the team that if nobody buys it, we can make a truck that looks like every other truck".
    Mod: Original here. --ggr
     
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  4. Fact Checking

    Fact Checking Well-Known Member

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    #64 Fact Checking, Feb 14, 2020
    Last edited by a moderator: Feb 15, 2020
    No, with @KarenRei's spreads the written higher price call is protected by the lower price lower leg call, so they are self-covered (no need for shares or cash backing), and capital requirements are basically the worst-case loss times the number of calls.

    So for example, if you buy a $1,000 strike 2021/01/15 for $110 and sell a $1,200 strike (same expiry) for $45 to create a leveraged bullish spread, then the worst-case loss is the difference between the two premiums: $65 × 100 = $6,500 if TSLA closes below $1,200 on 2021/01/15.

    With $160k of capital you can buy 24 such contracts.

    With narrower spreads - for example a $1,100 upper leg for $90 your worst-case loss is $20, and your $160k cash will finance up to 80 such spreads, without using margin.

    Note that if you start trading call spreads it's highly recommended you look up buy limit and sell limit orders and post your buy and sell orders at around the mid-price, the bid-ask price-spreads are rather substantial for the 2021 expiries that Karen is using, and will eat up a lot of the gains if you just buy/sell naively.

    It's also recommended to put your limit orders in well in advance and wait for the market come to you, with occasional adjustments as new events come in and the price develops, i.e. do not try to react to price spikes (there's exceptions though) - you are just not fast enough for that and it's also stressful and emotional.

    Another warning: on most retail trading platforms it's dreadfully easy to accidentally write naked puts or naked calls. You might want to ask your broker whether that can be enforced, i.e. let your account be downgraded to not allow naked options at all - only covered options and spreads. Not having margin enabled (i.e. a cash-only options trading account) is a solution.

    If not then try to find some procedure that keeps you safe, for example by always double checking the balance of your spreads - and also be careful about always starting with the lower leg: if you write the upper leg first you will for a short amount of time own a naked call. If some huge event comes in or should you lose Internet connectivity at just the wrong moment and the price crashes, your losses with a naked call are almost unlimited. I.e. think through the consequences and try to be worst-case transaction-safe in multi-options strategies.

    Same applies to closing and rolling a spread: always have at least as many long calls as short calls. No exceptions allowed: if you are trading in a personal retail account then your brokerage agreement makes you liable for any trading losses without limits, including all your personal and joint wealth, including your car, your home, all other bank accounts and more. Brokerages routinely go after retail clients that blew out with huge negative account balances, if the client doesn't pay they will sue and win, and if the client still doesn't pay the debt is sold to a debt collection agency.

    Many platforms will allow you to safely enter into and exit from spreads, but rolling them as @KarenRei does is usually manual work.

    Not advice and double check my calculations! :D

    Mod: Original here. --ggr
     
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  5. Fact Checking

    Fact Checking Well-Known Member

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    #65 Fact Checking, Feb 17, 2020
    Last edited by a moderator: Feb 17, 2020
    MODERATOR:
    This post is in the "Of Merit" thread for its referenced article's astonishing (Feb 2019) revelation of just how far behind and how encumbered by their famous intertied network of relationships amongst their suppliers the Japanese automakers are, from the standpoint of whether they will be able to catch up to where Tesla is at present. ===>All participants should consider the referenced article to be required reading<===


    New article from the Nikkei:

    "Tesla teardown finds electronics 6 years ahead of Toyota and VW"

    "Self-driving AI sends shivers through traditional supply chains"

    A teardown of the Model 3 shows Tesla so far ahead of more established peers that its technology could end the auto supply chain as we know it. (Nikkei xTech)
    ...

    What stands out most is Tesla's integrated central control unit, or "full self-driving computer." Also known as Hardware 3, this little piece of tech is the company's biggest weapon in the burgeoning EV market. It could end the auto industry supply chain as we know it.

    One stunned engineer from a major Japanese automaker examined the computer and declared, "We cannot do it."
     
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  6. ReflexFunds

    ReflexFunds Active Member

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    I completely agree with this.
    I really think over the past 2 years Tesla's mission statement has changed from "accelerate the world's transition to sustainable energy" to "transition the world to sustainable energy". Elon got tired of the incompetence and foot dragging shown by large corporations and governments around the world.

    There are many reasons why Tesla going alone is the fastest route to transition the world:
    1: Tesla's vertical integration, superior tech and better product means it will make more cash flow per EV.
    2: More cash flow means more money available to invest in R&D and capex for faster expansion.
    3: Elon knows Tesla's R&D and capex efficiency is far higher than anyone else.
    4: Elon knows Tesla can build EV and cell capacity much faster than anyone else.
    5: Elon knows Tesla will spend 100% of available cash flow on accelerating the world's transition to Clean Energy - while other Auto OEMs will spend cash on dividends, share buybacks, emissions fines, legal fees, ICE advertising & R&D, ICE recalls, legacy ICE pension/lease fleet liabilities, anti-clean energy lobbying etc. Tesla will spend excess cash on new EV and cell capacity, solar, stationary storage (& maybe even wind) installations, self driving EV fleets etc.
    6: Elon knows Tesla actually cares about sustainability and are not just acting to avoid emissions fines. He can't trust other companies not to try to cheat the system or to clean up their supply chains.
    7: Tesla has best access to the capital markets to raise additional funds to accelerate growth where possible.
    8: Elon knows Tesla is structured to accelerate learning rates and experience curves and will make the most use out of its cumulative EV production experience. Therefore an EV produced by Tesla will move the EV and battery cost curve further than an EV produced by anyone else.

    I wish all companies well in their Clean Energy efforts, but ICE OEMs are going to have to work to save themselves because Tesla's energy, capital and competitive lead is best spent directly on its own EVs & Clean Energy rather than bailing out other companies.

    ---

    Mod: original post can be found here
    Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable
     
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  7. jbcarioca

    jbcarioca Active Member

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    It seems to me that many of us are speculating on specific definition step changes that will suddenly propel Tesla to a new level. We have been trained to expect that since Model S, X, 3 and Y plus Semi, Roadster and Cybertruck. Add to that Solar Roof, PowerPack, and the continuing flurry of gigantic utility level battery installations. Then GF-2, GF-3, GF-4 and we are compelled to think of major events. Notwithstanding all of those exciting developments, including P85D, then P85D and a continuing series of product innovations...

    The greatest improvements of all are in continuous improvement, often with minimal drama. Production volumes rise, quality improves, remote service becomes a practical reality, maintenance needs regularly diminish and reliability regularly improves. GF-3 regularly increases output while expansion continues and GF-3 keeps making progress. All this is happening in the midst of worldwide COVID-19 disruption. New models are quietly added to the GF-3 production mix.

    Then we add the Sandy Munro Model Y teardown. Sure, he has criticisms. He's paid to be anal-compulsive. I've known his work for years. In the end look at the cost accounting component. When that comes out on Model Y we will know definitively what we already do know, that Model Y is cheaper to produce than is Model 3, itself a giant improvement on Model S. Further we begin to see a pathway for major production cost improvements for Model 3, already evident in GF-3. It's not cheap labor, but better production design and execution.

    All of these things are why I think Tesla already is at cost parity with comparable ICE, and that Semi, Roadster Cybertruck are certain to benefit enormously from all these improvements. Battery Day will have drama, including the impacts of Maxwell, Hibar and continuing chemistry innovations from Nova Scotia. That drama will be greater than will be the continuing improvements in packaging, production, BMS, heat pumps, motors and electrical systems.

    Beyond these is the virtuous cycle now becoming increasingly obvious. Lower weight, fewer parts, less labor, greater efficiency all combine to deliver substantially reduced costs.

    The reduced costs, lower weight and increased efficiency will permit profitable production and delivery of the next smaller class of Tesla vehicles, the already discussed "designed in China" ones. We'll have endless speculation mostly centered on 'what car?" but we may be assured that it will be a class of vehicles , not one. It will also follow now-established Chinese practice (taken from al the global builders) of making 'world cars' that end out being produced in many markets. Simultaneously there will be rapid expansion of energy products, these tailored to suit national and broader market character.

    Thus far this is nothing that has not been disclosed in generalities. The difference now is that Tesla is continuing to develop all of this during worldwide preoccupations and distractions. The never disclosed nor openly discussed factories in Mexico, Brazil, and probably others will come in 2022 just as the Texas plant will open. We have been forgetting how quickly Tesla needs to add new factories, Giga or otherwise. At least one more European location will arrive soon after and further China expansion si under way now to go far beyond the half-million vehicles per year.

    Within the next six months we will have a really good idea of how capital and resource efficient Tesla has become. Current event are providing an entirely unwelcome stress test which is demonstrating just how resilient Tesla actually is today.

    I am going longer even now.
     
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  8. Artful Dodger

    Artful Dodger Supportive Mentor

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    I don't know what tomorrow will bring, but I'm not concerned either. Here's the big picture in the auto industry as I see it:
    • The Competition is NOT coming:
      • Both Ford and VW are having major delays with their nascent EV programs
      • EVs aren't as easy as ICE, as Mercedes found out with their EQC "conversion".
      • The awful efficiency of much-hyped offerings like Audi's E-tron and Porsche's Taycan only showcases Tesla's vast lead in technology (World-beaters, and getting better daily)
      • Auto giant Toyota doesn't have a competitive EV (have they finally given up on 'fool cells'?) while some Japanese marques don't even HAVE an EV program (good grief)
      • With Tesla's launch of the MiC Model 3, they have INSTANTLY become the premier domestic EV brand, and are on a path to dominate the Chinese AUTO market, the largest in the World
    • Established Automakers are on the Ropes: We've long known on this Forum that a mere 10% drop in sales wipes out the profitability of large marques who already operate on razor-thin margins. With the Covid-19 crisis driving down their sales:
      • many face bankrupcy and may seek Gov't support
      • most (or all) are cancelling dividends, a sacred cow for investors
      • many face credit downgrades making the cost of capital burdensome
    • Tesla is in great shape to weather a downturn:
      • There is a untapped pool of customers ripe for Tesla's numerous demand levers
      • The Model Y SUV is becoming available in N.America just in time to capture market share in a larger market and with a product with higher gross margins than Model 3
      • Tesla has a strong balance sheet, and is likely STILL cash-flow positive even in a downturn
      • New factories and new products strengthen demand each quarter while they gain access to new markets and new segments of those markets
    • Tesla is NOT your father's 8-yr old sedan:
      • Semi is both a product and a technology stack that is poised to sweep away the competition in the trucking / logistics industry: Even in a recession, goods must flow and ACCOUNTANTS call the shots
      • Solar Roof is a game changer. Starting in California and working outward, anybody with means and a desire for the security that comes with independace from the Grid will sign up
      • Tesla Energy is poised to END the use of all NG Peaker plants with its new line of MegaPack utility class energy storage products
    • Tesla has a strong and relentless Leadership Team:
      • Tesla attracts the best in Engineering talent, because of THE MISSION
      • Tesla has a no-quit, double-quick-time rock-star of a CEO that refuses to lose
      • Let me say that again: Tesla is so results focused that even its cars have VISION.
    So come what may on Thursday, I'm looking toward 2025 and beyond and the view is splendid. BTW, Ron Baron isn't selling... :D

    Cheers!
     
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  9. CorneliusXX

    CorneliusXX Active Member

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    While battery day is going to be fantastic and there are plenty of unknowns, I think there are enough leaks out there now via multiple avenues (Patents, job hires, talks from insiders, research from limiting factor youtube channel, leaks from Soylent brown) that we can broadly know what is going to happen.

    Tesla is going to make their own cells with 4 major improvements:
    • No tabs - increasing battery current significantly
    • DBE - increasing current, storage and reducing cost
    • New electrolyte/s - increasing energy density and longevity of cells, along with cold weather performance
    • single crystal tech - increasing energy density and longevity of cells
    The big unknowns are just how much more energy dense and cheaper are these cells, and how fast can they scale.

    It's also pretty safe to say that these cells will bring EVs to at least cost parity with ICE vehicles and unlock a cheap 4th gen vehicle along with CT, Roadster and Semi.

    What I am really curious to know is what the other flow on effects from battery day will be. A couple of highly speculative examples:
    • If the batteries are sufficiently energy dense (rumour 500Wh/kg) that they can be used for planes, what will happen to Boeing and Airbus? Demand is nearly at 0 for new planes and passenger numbers are unlikely to reach old highs for years. Will remaining alirines just ride their current fleet longer and wait for new tech? the quietness and operating costs of a batter powered plane will obsolete substantial segments of current fuel powered planes
    • Same with energy storage - If cells are cheap enough that the grid can rapidly scale to multiple hours/days of energy storage then will we see a faster acceleration to solar/wind installation and grid storage while knocking out the reaming coal/gas/nuclear power plants.
     
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  10. MC3OZ

    MC3OZ Active Member

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    Tesla presentation on VPP and Autobidder - how it all works..

    Moderator: Consider this as an excellent first real introduction into one of the most important facets of Tesla’s universe of platforms - an absolute must-view for investors.
     
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  11. jbcarioca

    jbcarioca Active Member

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    This is the most interesting presentation I have seen since the original Hornsdale.
    Although this was very, very high level conceptual architecture the impact of carefully selected linguistic and functional functions yielded enormous scalability, reliability and resilience. They make the assertion that making their own hardware was a crucial factor, just as it has proven to be with Autopilot.

    Logically this makes me think that the genuine moat of Tesla is shared with SpaceX and the other Musk-defined organizations is quite different than any we have been discussing. We speak of battery longevity and energy density, Supercharger networks, reusable rocket components and clever continuous updates. The more mechanically included marvel over new materials and gigantic castings of BIW pieces.
    Those are all marvels, but they are results of the moat, not the moat itself.


    The moat is not even the ability of Musk-led firms to attract the brightest and most excited people, nearly all of whom are obsessively wanting to learn new things. It is, rather, the ability to get such people to actually work together. That produces magic and perpetuates magic. That also allows Tesla, SpaceX et al to openly share their patents and describe their approach. Virtually nobody can actually do that.

    Side effects include rapid turnover due to burnout, for collaboration is intensely compelling, so much so that all other parts of life fade in importance. Elon Musk has kept several organizations simultaneously producing so many major innovations that we rarely attempt to even list them all.

    In the early 1980's I spent several years in an organization that was devoted to that thesis. It was a magical time, but burnt itself off because of lack of magical leadership. Still, every major accomplishment of my life came from that weak effort. What we did was usually arcane, rarely publicly visible and almost never attributable. On the other hand, the results had lasting consequences for major parts of the world. A few years from now many invisible Musk alumni will persist in being thrilled that they actually changed the world for the better. Most of them will, as I did, sacrifice financially to do that. Probably most of them will, as I did, discover to our amazement that we end out becoming quite well off financially as a side benefit.

    For me, I shall invest an allegedly unhealthy part of my assets in Tesla, SpaceX, Starlink, The Boring Company and others, as they become available one way or another.
     
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  12. FrankSG

    FrankSG Supporting Member

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    Perhaps potential long term (10 year) upside is lower now than it was in Jun'19, but I actually think that downside risk for TSLA @ $800 today is less than it was a year ago @ $180 thanks to:
    1. The fantastic cost reductions and margin increases in Q3'19.
    2. Model Y and Shanghai are way ahead of where anyone expected them to be a year ago, and have also proven Tesla can rapidly ramp up the production capacity of new products and factories.
    3. There is less chance that something catastrophic happening to one of Tesla's production facilities will ruin the entire company, because Tesla now has two vehicle factories, soon to be even more.
    At a SP of $800 Tesla is valued at ~$160B. Most large tech companies are valued at at least 20x EBIT (APPL 20x, GOOGL 25x, MSFT 35x, AMZN 85x). For Tesla to deserve its current SP of $800 at a 20x EBIT valuation, it'd require a yearly EBIT of $160B / 20 = $8B, which is a quarterly run rate of $2B in EBIT per quarter.

    Tesla currently has an operating margin of 5%, but with the leverage of Shanghai, and soon also Berlin, this should go up to 10% at least, possibly as high as 15%. But let's stick with the 10% for the purpose of this calculation.

    At an operating margin of 10%, Tesla would require $20B revenue per quarter to achieve a quarterly EBIT of $2B. The ASP of Tesla's EVs may be around $50k, but including credits sales, automotive leasing, and non-automotive revenue, I expect Tesla to achieve this when it delivers a little over 300k vehicles per quarter.

    Today, Tesla already has production capacity of 172.5k per quarter:
    • 22.5k S+X
    • 100k Fremont 3+Y
    • 50k Shanghai 3
    By the end of this year, Tesla will have installed production capacity of 210k per quarter:
    • 22.5k S+X
    • 125k Fremont 3+Y
    • 62.5k Shanghai 3
    Around this time next year when Shanghai will have ramped production of the Model Y, Tesla will be able to produce at least 272.5k per quarter:
    • 22.5k S+X
    • 125k Fremont 3+Y
    • 125k Shanghai 3+Y
    Although I suspect that Shanghai may end up producing more than 5k MY per week. However, either way it won't take Tesla much more (Berlin should easily do it) to reach production capacity of a little over 300k per quarter, and deserve its $160B valuation and $800 SP at an EBIT multiple valuation of 20x.

    Of course in reality Tesla would be valued at much more than 20x EBIT, perhaps as much as 3x or 4x that.

    P.S. Not trying to argue that people should go all-in TSLA, but disagreeing that risk is higher than it was a year ago.
     
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  13. jbcarioca

    jbcarioca Active Member

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    It is easy to go far off-topic here, but given the Tesla OpEx consequences of the Tesla advertising policy it is important to understand the exact things Tesla does and does not do. Given my propensity to post on myriad subjects it might be relevant that my PhD (NYU) and MBA(Columbia) were in Marketing and International Finance/Marketing respectively. I taught Marketing as an adjunct in two universities.

    First, the definition of Marketing and of Advertising has changed significantly due to both better targeting through new technology and privacy laws. Advertising now is, by spend, primarily highly targeted internet placements, thus invisible to people outside the target. Conventional broadcast, periodical and newspaper placements continue to decline, replaced by targeted Cable/Internet placements.

    Today only the broad audience products are significant spenders in conventional advertising. P&G, pharmaceuticals, reverse mortgages and other such stuff still can justify those channels. The generic ICE manufacturers still blow >$500 per vehicle that way because they’ve always done it, plus a more or less equal amount on dealer advertising support. They largely waste the money. As John Wanamaker famously said in the early days of formal advertising “I know I waste half the money I spend in advertising. The problem is I don’t know which half”.
    Today we have the data to know.

    Tesla is built on data and rational evaluation of choices. With the highest owner satisfaction in the industry and enthusiastic word of mouth plus very aggressive cheap or free promotion on social media there is exactly zero, repeat zero, justification for Tesla to promote it’s products in any manner different than it now does. Ignore whether Tesla is or is not capacity limited. Tesla cost per reach today is immeasurably small, because rapidly increasing owner communities are doing the job so well.

    FWIW, among the most profitable and successful consumer companies in the world today, none engage in large scale advertising. Amazon, Apple, Baidu, Netflix... and on and on. None of them spend much on conventional advertising. All of them do now spend enough in carefully selected areas to maintain their images. Each does to highly selected placements that are important to augment political support.

    Tesla gains substantially from association with SpaceX, which is by any measure the most efficient influencer of buyer support in the aerospace industry. Highly selective product placement by Tesla helps greatly with Tesla political/regulatory support.

    For decades the best marketers have been the most efficient ones, who achieved their success without ever resorting to much conventional advertising. Of course their corporate names are not household ones.

    Does Tesla need to raise awareness? Does Tesla need to attract new customers who know nothing about them?

    I find it to be naive to imagine that Tesla should emulate the promotional and positioning tactics of the failing companies in Automotive and Energy. Tslaq are the only ones who really might benefit, apart from TV and publications.
     
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  14. StealthP3D

    StealthP3D Well-Known Member

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    I really like this post and it's not because it's so very bullish and that I see dollar signs in my eyes, it's because it reflects the reality of how the market actually behaves in such situations! To be 100% honest, I wish this were not how markets worked but no one person is powerful enough to change the culture that creates this situation.

    Human nature is partly responsible for the "parabola effect" (greed, FOMO, the lemming effect) but my observation is that the Wall Street culture exploits this human weakness to effect maximum profit for those in on the game. And I have been seeing the signs of this transition within the industry for some time now. The publicly visible beginnings of this change began many weeks ago when the most well-known manipulator of them all, Jim Cramer, started recommending TSLA. The boys in the club will make billions of dollars in profit as they pimp Tesla to the hilt, encourage maximum greed, and make it climb for the sky to a dizzyingly high and previously unimaginable crescendo before collapsing back down to levels that can be easily justified by reality.

    The very people who have been encouraging their minions to represent that Tesla has no future will now make Tesla out to be the golden goose, the savior of the world, the answer to all our woes, everything it really is and more. The future will be so bright you will need welder's goggles to look directly at it. The price of TSLA shares will rise to heights not even the most optimistic TSLA bull could have imagined as recently as last week (and higher than some TSLA bull will ever be able to imagine).

    Of course the exact speed, duration and height of this move, not even the boys in the club know. This game is a dynamic one and it depends upon the response of the overall market to their dance. But the story is a good story (as we all know) so you can bet the boys will work it longer and take it higher than your instincts are likely to tell you. It will have sharp drops along the way that many will think MUST be the absolute top. These are absolutely necessary to keep the story alive and strengthen it for the next leg up. And the boys in the club like to profit as much as possible so they will keep the game going as long as possible. A successful virus does not kill it's host because then the game is over. A virus keeps it's host alive so it can continue to spread and become bigger and more successful and have maximum impact. The boys want to keep the game alive as long as they can make another buck and they will play it as long as they can keep the story alive. Because of TSLA's standing in the market, the end of this game with TSLA will coincide with the end of the current market bull run.

    During the recent Coronavirus dip to the $350's the boys in the club took Tesla as low as they could. They will not be doing that on further corrections on the way to the top because it risks the market losing too much confidence in their subject. They want to establish doubt and initiate a sell off without destroying the bull run. You don't want to kill the goose that lays the golden eggs prematurely. The higher TSLA goes, the less it will take to establish a correction, they will start to happen naturally.

    There are some caveats here. External factors, like loss of confidence in the market, could cause both games to end prematurely. It's important to realize this game is being played within the context of a larger game, the current bull market. The big game is being run by the same boys in the same club. TSLA is the smart kid that the boys in the club don't really like. So they will make him the hero of the bull market before they make him the goat. But even they do not know which game will end first and cause the other to end also. In their ideal world the larger game holds together long enough to take TSLA to extreme new heights as that makes them the most profit.

    It's times like this I'm glad we have a leader like Elon. He can't stop the manipulators from doing what they do but hopefully he can use it to good effect in terms of accelerating the mission. Another thing to be aware of is that Musk doesn't like the boys in the club anymore than most of us do. But he is in a position to make their job more difficult. Which means anyone trying to emulate the boys in the club for profit could get hurt right along with them when Musk takes action to disrupt their game.
     
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  15. jbcarioca

    jbcarioca Active Member

    Joined:
    Feb 3, 2015
    Messages:
    4,663
    Especially when we are all euphoric, as we are now, we do need to remember that there were years of relative stagnation in share price as well as significant periods of losses. For example if one, like me, bought TSLA on 28th Sept 2015 the closing price was $247.57. Assessing performance again on 27th May 2019 the closing price was $181.16. Factually it is entirely possible to make a case for selling. Also factually I bought on both of those dates.

    Now back to euphoria! My TSLA CAGR from 2013 to today rests at a bit above 60%. Based on my own experience "Buy and hold" is the wisest course if, and only if, one devotes inordinate attention to fundamental value.
    If ever the fundamental prospects seem questionable...sell and do not look back. As always the question is : what is fundamental value? That is simple of all else remains the same, but it doe not.

    We may well see a major correction soon. After all many stocks are exceedingly frothy (in the industry how about NKLA?). It is ever thus. In the Great Meltdown of 2000 there are really solid points of commonality with today. The wiki on the subject does give a decent summary, including the triggers, all obvious at the time.
    Dot-com bubble - Wikipedia
    Since I spent a good part of 2001/2002 working on mop-up of dot-com corpses I am acutely aware of the numerous common elements with the present state.

    The short thesis sees TSLA as one of those dot-com style almost fraudulent pitches. The fundamental analysis shows TSLA has nothing at all in common with those. The long patent list, cash-rich operations, low leverage and sound financing of industrial processes are all major points fo difference. Further high vertical integration NEVER was part of the dot-com era.

    Further the net financial position fo TSLA is far stronger than most analysts see. Why?
    First, the Fremont property is vastly undervalued on the financial books because the core property was absurdly cheap.
    Second, TSLA is cash flow positive and hs been for some time despite very rapid growth and major factory construction, not to mention significant R&D, though they are so efficient in R&D that the costs are far lower than seem plausible, unless one sees just how SpaceX and TSLA share technology is ways not even conceivable to the competitors.
    Third, the TSLA direct sales process yields vary conservative sales recognition. Specifically the vast majority of competitors are recognizing revenue when vehicles are shipped to distributors/dealers. That means the 'Days of hand (DOH)' for TSLA ought to be at least double what they are. It is quite amazing that the continuous improvement in shipping and moving towards production nearer the markets is allowing very, very low inventory.
    Fourth, the manufacturing efficiency and systems integration produced by TSLA regularly amaze the most cynical and anti-Tesla people.
    Fifth, then there is Tesla Energy. That is sufficiently complex to require books and books. Here mention only two things: Autobidder and Solar Roof. Those two alone are already transforming their category. Both are comparable to the Model S of 2012 in the impact they will have on perception and comparable to Model Y in their almost certain impact on their markets.
    Sixth, the world seems to think all this will collapse without Elon. Without diminishing his contributions one iota I suggest the doubters should examine the TSLA senior executive ranks, full of over-achievers.

    My conclusion is that TSLA remains undervalued so I will not sell, rather I will continue to buy. We will have more positive outlook with 2nd quarter results and battery day. Even more as GF-3, GF-4 et al continue to develop.

    OK, there are both production and distribution problems with fit and finish, as well as continuing issues in after sales service. Those issues will certainly diminish as new production processes (including new paint shops in China and Berlin) come on line and as mobile service and service center begin to mature. These are the largest vehicle impediments, and will grow as smaller and cheaper vehicles begin to enter production.

    Also, the rapid growth in utility, grid and residential/commercial TE products grow there will be more growth-related service and support issues. Those may be more easily managed than have been the vehicle ones.

    The regulatory and economic factors will all be material in TSLA financial results and in market acceptance of TSLA products. That is another topic. However, the global direction favoring TSLA product categories is almost certain to be favoring growth. Individual countries, most famously the USA, may swing from positive to negative from time to time. Overall, despite setbacks, it is clear that TSLA can operate without specific 'green' encouragement, although those will be major positive forces where they exist.

    On this day of euphoria I thought it wise to decide once again if I stay Long. I will do so.

    I offer no advice other than that TSLA investors should do exhaustive research prior to and during investment in the company. OTOH, I recommend that for any investment. Thus, I do not diversify very much because I do not have the ability to examine more than four or five investments well enough to feel confident in my choices. This approach has up years and down ones but the former is much more common than the latter. It might not continue that way but it has done so for the last 50 years. OMG, I have been at the for 50 years? Do not accept anything I say, I am actually pre-Boomer by a few months so as a certified Geezer one should ignore my views. Follow, if you do, at your own peril.
     
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  16. The Accountant

    Joined:
    Aug 6, 2019
    Messages:
    402
    Location:
    Connecticut, USA
    If you don't have time to read this post in its entirety, skip to the Auditing the Warranty Reserve Section
    I write this post to address allegations by Tesla bears that there is fraud with Tesla's Warranty Accounting.
    The allegations are nonsense and I am confident that the Tesla's Warranty Reserve is fairly stated as audited by PwC
    Warranty reserves are required for Tesla Autos and Energy products but in this post, I will use Tesla Auto in examples.

    Background
    Tesla provides a limited warranty on new vehicles of 4 years/50,000 miles and for the battery and drive unit - 8 years/100k-150k miles (depending on model), whichever comes first. When a vehicle is sold, Tesla needs to expense expected warranty costs upfront.

    Computing the Warranty Reserve
    To determine what amount to record as warranty expense at the time of sale, Tesla uses warranty claims history. These numbers are estimated and used for illustrative purposed only. Past Claims per Car may look as follows:
    upload_2020-7-11_11-42-40.png

    Although the repairs and cash outlay will occur over 8 years, Tesla records $1,500 per car at the time of the sale. They do this by setting up a reserve of $1,500. Since $1,500 has all been recorded in Year 1, future charges (e.g. $500 in year 2) does not impact the income statement in Year 2 as it is charged against the reserve that was set up in Year 1. So Tesla has a charge of $1,500 in year one and nothing thereafter (assuming the $1,500 estimate is good).

    The Goodwill Allegation
    If a repair does not fall under the warranty policy, a Service Center may do the work free of charge to keep a customer happy. This is a Goodwill repair. Although Goodwill repairs hit expense, they do so in the year incurred and not reserved for at the time of sale. This is proper accounting. The allegation from some claiming fraud is that Tesla is coding warranty work as goodwill to lower the reserve required at the date of sale.

    Here is an example with amounts that are for illustrative purposes (not actual).
    If the cash outlays in years 1-8 are as follows......

    upload_2020-7-11_11-49-41.png

    ....then the impact to the income statement is as follows:
    upload_2020-7-11_11-43-39.png

    As you can see, Warranty expenses are all recorded in year 1 but the Goodwill expenses get recorded as incurred.
    The people shouting fraud are stating that many of the Goodwill charges are really Warranty expenses (mis-coded) and should be charged in year 1 (thereby understating expenses in year 1).

    Auditing the Warranty Reserve
    There are a number of steps performed in auditing the Warranty Reserve but one audit step addresses the Goodwill claim. Auditors will review data to ensure all and only warranty claims data have been accounted for. Since there are thousands of transactions, it is not unlikely for there to be a few miscoding errors. If PwC found some repairs coded as goodwill rather than warranty, it is likely that it was addressed in one of the following ways:
    - the miscoding was not material enough to change the reserve and allowed for a clean Audit Opinion to be issued.
    - the miscoding was quantified and Tesla adjusted its warranty reserve in the published financial statements.
    - the miscoding is already accounted for in Tesla's warranty reserve calculation (adding additional expense to account for miscoding).

    The reason we can feel comfortable that PwC has done a thorough job at auditing the warranty reserve is because they told us. It is written right in their Audit Opinion Letter in the 2019 10K (see page 64 of 10K). They actually bring in professionals with specialized skills in this area to audit the Warranty Reserve.
    upload_2020-7-11_11-44-58.png
    They wrote something similar for Ford (who they also audit):

    upload_2020-7-11_11-45-29.png









     
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  17. avoigt

    avoigt Active Member

    Joined:
    Sep 5, 2017
    Messages:
    2,619
    Location:
    Germany
    About the Q2 Results

    What we heard last night is a game-changer and I assume that the last ones are now waking up and realize what Tesla is about and why they are different than all other automakers.

    Profits and revenue in Q2 against all odds are incredible and the now almost assured S&P inclusion will have technical implications which a strongly reduced float that gives the SP a lot of tailwinds.

    Even more important the old argument about profits and cash flow seems to be finally over now. What they still have to argue with is the credits which I only can smile about. The inflow of credit revenue is not a one time effect and has never been because incumbents struggle to produce BEVs and create demand, therefore, their need will rather increase than decrease and Tesla is the shop to go to get them.

    Regulatory credits will be a stable revenue creator for a longer period of time and in that sense add to the margin and profit. There is nothing negative about them and they should be considered as a normal regular part of the business.

    It's positive to have low profits in a situation where every percent more market share enables the company later to have a much higher leverage for-profit creation. Its time to conquer global market share from incumbents and exchange ICE with BEV and not the time to sell a few BEV making a high profit that you put in the bank or give to shareholders. Amazon was the best example and Tesla does follow their strategy.

    If Tesla would take high profits and pay dividends without expanding as strong as they can I would consider starting selling shares. To accelerate the mission requires many more GFs and higher productivity and that's exactly what they are doing.

    While the automotive unit is doing great TE is still not where I like them to be. It's great to see the Megapacks doing well but solar is still not where it ought to be. TE growth and expansion is the only small shadow if you want to call one. They are constrained by battery capacity for sure but that does not explain all of it. With the Nikel based battery for model 3 MIC, capacity will be set free which should help the storage business.

    Many other side notes are incredibly encouraging e.g. insurance, AP but also the continuous improvement in manufacturing. Since I am a production engineer by education and watch what they are doing with delight I know exactly what they talk about. It's underestimated how incumbents did sit on their buts without improving manufacturing. One of the reasons for that low pressure to improve efficiency and manufacturing has been the almost Oliogopol we had for decades in the automotive industry. They made a ton of profits without improving and investing because they could.

    Because consumers have now a choice everything is changing. Mark my words, this is just the very beginning. The automotive industry 10 years from now will look very different and the CoVid crisis did give them a chance to accelerate and they used that opportunity very well.

    The situation will become for Tesla better and better with every year pasing by. Challenges are clearly to find enough talent and enough labor e.g. Germany and resources e.g. Nikel but that are issues you can solve.

    Many wait for today trading day to start and watch the pre-market but this time everything is different. Because of the S&P inclusion, the rules of the game changed fundamentally. We won't see much of it necessarily today but over time unfold. the next weeks will show us more and the 2nd half of 2020 will be a lot of fun to watch.
     
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  18. vikings123

    vikings123 Supporting Member

    Joined:
    May 27, 2019
    Messages:
    526
    Location:
    MN
    This is not directed at you but as someone who used to worry about these drops I think I can offer some advice to people who are new to these forums. I realize it's disappointing to an investor when the company you love so much and is probably a decent chunk of your portfolio does not get the bump you expected. That said macros were bad for the past few days and what are we down 11% from Wednesday's close?. TSLA can get that back in a few hours on Monday. Also a lot of AH trading is noise and way more manipulated then regular hours trading. Like this morning somebody dumped 20K shares at the pre market open to manufacture a 5% drop in 10 minutes. There is nothing you can do except HODL.

    This is a volatile stock(heck even Elon agrees) so instead of worrying about all the different manipulations that went into manufacturing the drop I suggest we focus on using that time to educate fellow investors and help with the transition to clean energy. If you wish to be adventurous there are a number of things you can do with your investment to either reduce risk or get a high 'dividend'. I'm not suggesting or recommending this by any means but only if you have the time to learn and apply some of the concepts from other threads in these forums. Again this is only for advanced investors but this is one way to minimize risk and get paid. You will need to put in a lot of time to learn the concepts and start small until you learn the ropes. Please skip the next section if you are not interested.

    Options:

    Understand that a lot of the daily and weekly price action for TSLA is driven by option selling and buying. You will see how option buyers manipulate the stock price by buying calls, often times paying millions for lottos. These big buyers can move the market. MMs then are forced to delta hedge and boom you get a double effect if institutional buyers or hedge funds also decide to buy at the same time. This and short selling are two big reasons why TSLA continues to be volatile.
    • Selling cash covered puts: See the wheel thread by @adiggs to learn how to apply the wheel to sell options(calls and puts). This strategy has really helped a number of folks on this forum. The idea is to sell aggressive puts and far OTM puts in some cases. If you get assigned the idea is to then sell aggressive calls. Again this requires capital and NOT recommended on margin.
    • Selling covered calls: See the wheel thread by @adiggs. I'm not a big fan of selling covered calls for small bucks but there is money to be made if you sell high: For eg: On days when SP has appreciated a lot or during periods where IV is really high.
    • Buying calls in rare circumstances: Buying calls only makes sense when the SP is on a downswing(like today) or when the market has mispriced the premiums. This is mostly gambling so be very careful with this one. But like @KarenRei famously used to say Buy low sell high. Not very complicated but you just need to be smart and not FOMO buy. I think @FrankSG has made some good posts about when it might make sense to buy LEAPS vs buying shares.

    Understanding technicals

    @Artful Dodger and @Papafox have great end of day summary threads. Spend time to understand Bollinger bands, 5 day MA etc and how the price discovery happens for TSLA. There is a wealth of knowledge in those threads so definitely take some time to understand it. These technicals are useful to understand your buy points and key support/resistance levels. Useful if you are looking to add to your positions. The MMs and shorts will always give you an opportunity to buy low. Apparently they have an infinite bank account balance and love to donate money.

    The HODL mentality

    You almost need a zen like mentality to be a long term investor in TSLA. There will be ups and downs.Try to not look at the stock price on a daily basis if you can. Instead continue to learn more about the company and make sure you continue to believe in the long term thesis of your investment. @StealthP3D has made some excellent posts about how to be in that state of mind. I can't recommend a specific thread but there is wisdom in most of his posts :). There also other long timers in these forums that continue to post on a daily basis. The point is this is a long race and it starts with your mind.

    Sorry for the long post but I hope some of the newcomers find this useful. Cheers.

    [​IMG]
     
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  19. The Accountant

    Joined:
    Aug 6, 2019
    Messages:
    402
    Location:
    Connecticut, USA
    Fair question. With past results, there have always been a few statistics that bears would highlight to spread doubt. The Q3 2020 results put these doubts to rest.
    • Tesla is not profitable without Regulatory Credits (no longer true)
    • Tesla loses money on each car sold (this was never true but more obvious now with profits excluding Reg Credits)
    • The more cars Tesla sells, the more they lose (the opposite is clearly true now… revenues will grow 31% and GAAP profits will grow 242%....the Operating Leverage is huge).
    • Even with growth in vehicles, revenues have declined or remained flat (no longer true)
    • There is not enough demand to meet the production of two factories at full capacity (Q3 is the first test and Tesla has passed…demand has met ramped up production)
    • Price Cuts will weaken margins (nope…margins went up)
    • Tesla share price is too high (Sorry Elon..it's actually cheap - at $3.50 non-GAAP EPS for Q3, that is $14 annualized giving Tesla a 100 P/E ratio - Amazon was at a P/E of 236 when it first turned profitable (as are many growth companies)...at a 236 P/E, Tesla SP would have to be at $3,300)
    With the Q3 results, the only FUD remaining is “the financials are fraudulent”. At that point, it is only the tin foil hats remaining in the FUD club.
     
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