Tesla Gigafactory Investor Thread

[TSLAopt]

You seemed to be referring to group think in relation to that article. You acknowledged the flaw in that article, which was it's entire premise. Since the premise was flawed, the article was flawed. How was that group think?
I think most of us are open to valid criticism, it's not our fault that there seems to be very little of that to be had. The fact is we have been studying this company for much longer than most people, especially the critics, so it's easy for us to see the flaws in their arguments and quickly dismiss them, especially when they are based on incorrect data.

+100
i personally have studied Tesla Motors for hundreds of hours (if not over a thousand) over the past 2-3 years. I am always looking for realistic weaknesses in the future of Tesla. Many of us on here are in the same boat with this and we can very quickly and easily spot errors in the thinking of reports/articles written by people who have studied Tesla much less than we have.

If you can come up with a new realistic threat to Tesla's future then we are all ears and looking for that data constantly to help us understand the risks we are in with owning TSLA stock long term.

 

[kenliles]

You seemed to be referring to group think in relation to that article. You acknowledged the flaw in that article, which was it's entire premise. Since the premise was flawed, the article was flawed. How was that group think?
I think most of us are open to valid criticism, it's not our fault that there seems to be very little of that to be had. The fact is we have been studying this company for much longer than most people, especially the critics, so it's easy for us to see the flaws in their arguments and quickly dismiss them, especially when they are based on incorrect data.

+100
i personally have studied Tesla Motors for hundreds of hours (if not over a thousand) over the past 2-3 years. I am always looking for realistic weaknesses in the future of Tesla. Many of us on here are in the same boat with this and we can very quickly and easily spot errors in the thinking of reports/articles written by people who have studied Tesla much less than we have.

If you can come up with a new realistic threat to Tesla's future then we are all ears and looking for that data constantly to help us understand the risks we are in with owning TSLA stock long term.

i THINK i'm in this GROUP

 

[WarpedOne]

Just as a sample - registered on 08-17-2006, 2788 days ago.
All this time I've been spending somewhere between one and two hours a day reading *anything* Tesla, that is over 4000 working hours studying and thinking about it from almost all perspectives.
It hadn't happen for years that I heard a novel view from a guy *outside* this forum. I cannot even read a newspaper article on tesla anymore without bitching about erros, misconceptions, false assumptions etc.

 

[Norbert]

The biggest problem with the Gigafactory, at this point, appears to me to be a lack of confidence (on Panasonic's side), not overconfidence. Even though there is some of the spirit here that sport fans have for their favorite team. Yet especially in the beginning, we have discussed a lot of contra points about the Gigafactory.

However, for Panasonic, it may be such a large investment that it comes close to betting their company on it, and the current (or recent) shortage of battery cells is likely a result of Panasonic being cautious about sales predictions, in the first place. So I can understand that they think twice before jumping into the deep end of the pool.

Nevertheless, I'd think that Panasonic should be in a good position to make a judgement about the possibilities of reducing the battery cell cost in 3+ years, and at that large scale. And if that can be achieved to some good degree, then the success of Model E is more than likely. Based on that condition, which I assume to be almost a given, I think Panasonic should be able to make a positive decision about its investment.

 

[ggr]

The reason for the original 18650 form factor is that that is what was being produced in huge quantities already, and it lent itself to the required packaging and cooling requirements. Elon and JB have said a couple of times that while it's good for their purposes, it isn't optimal. ISTR "maybe a little bit bigger" would be better. Tesla clearly doesn't believe in the much larger form factor that most others have gone for though.

 

[hummingbird]

The following three entities may at times have conflict of interests: Elon Musk, TSLA stock holders, Panasonic.

Elon's primary goal is to save the planet from global warming ASAP.

Panasonic's primary goal is to make the most amount of money with the least amount of risk. Panasonic is not interested in sharing its battery IP and know-how with anyone. It's in Panasonic's interest to keep supply slightly below demand to keep cell prices high for as long as possible, which I suspect they might have achieved with the recent 4-year 1.8 billion cell deal with Tesla.

By the end of 4 years they would have been supplying cells to Tesla for 7 years. Will cell costs have declined by 7% per year, or 40% in 7 years? ( note: $1 * (0.93)**7 = $0.60 ) I suspect not. Hence Elon Musk wants to bring the production in-house.

The WSJ articles above by Mike Ramsey reasonably suggested other reasons why Panasonic would be apprehensive about jointly doing a large factory with Tesla. The same applies to Sumsung, LG, Chinese.

Tesla has been in business for ten years but this vital component is still single sourced. We don't know all the reasons why.

 

[EnergyMax]

The following three entities may at times have conflict of interests: Elon Musk, TSLA stock holders, Panasonic.

Elon's primary goal is to save the planet from global warming ASAP.

Panasonic's primary goal is to make the most amount of money with the least amount of risk. Panasonic is not interested in sharing its battery IP and know-how with anyone. It's in Panasonic's interest to keep supply slightly below demand to keep cell prices high for as long as possible, which I suspect they might have achieved with the recent 4-year 1.8 billion cell deal with Tesla.

By the end of 4 years they would have been supplying cells to Tesla for 7 years. Will cell costs have declined by 7% per year, or 40% in 7 years? ( note: $1 * (0.93)**7 = $0.60 ) I suspect not. Hence Elon Musk wants to bring the production in-house.

The WSJ articles above by Mike Ramsey reasonably suggested other reasons why Panasonic would be apprehensive about jointly doing a large factory with Tesla. The same applies to Sumsung, LG, Chinese.

Tesla has been in business for ten years but this vital component is still single sourced. We don't know all the reasons why.

But then would not Panasonic be delaying an inevitability, and risk losing their GF position to others, which then leaves them on the sidelines forever?

I think the only two reasons for a Panasonic delay could be (1) they truly believe there might not be enough demand for Gen3, or (2) they're trying to negotiate the best possible deal.

If the delay is due to (1), then Tesla must go elsewhere.

If the delay is due to (2), then I wonder if Panasonic really in such a position of strength with so much proprietary knowledge that no other potential partners posses? As you say, we don't know why Tesla is single sourced here.

(I'm not all that impressed by the WSJ article by Ramsey)

 

[JRP3]

We can make some educated guesses.
1. Panasonic and Tesla have a partnership agreement.
2. Panasonic had the best energy density, best cycle life, and best quality control at the right price point.
3. Integrating a different cell from a different provider could have resulted in a number of issues that outweighed the benefits of having a second supplier.
4. Panasonic and Tesla both have battery IP that they have been sharing with each other.
5. Panasonic may wish to keep prices high as long as possible but they probably don't want to lose their largest current and certainly future customer.

The article by Ramsey did not suggest any reasonable reasons why Panasonic would be apprehensive about the gigafactory because, as has been pointed out repeatedly, his reasons were based on a falsehood.

 

[Taj]

I think you could have a good point with Samsung as the maker of the battery for the Teslas'. I don't know if the media has already pointed out that Samsung could be a possibility.

 

[Norbert]

5. Panasonic may wish to keep prices high as long as possible but they probably don't want to lose their largest current and certainly future customer.

Or Panasonic might be interested to help growing the EV market quickly, in order to sell in 10x, and later in 100x volumes. By reducing cost as quickly as possible. Whichever company is going to partner with Tesla on the Gigafactory, while carrying a risk, will in the success case have Tesla as a guaranteed customer, and thereby become the first mover in an exponentially growing market.

By the end of 4 years they would have been supplying cells to Tesla for 7 years. Will cell costs have declined by 7% per year, or 40% in 7 years? ( note: $1 * (0.93)**7 = $0.60 ) I suspect not. Hence Elon Musk wants to bring the production in-house.

In the case of the Gigafactory, Elon is expecting a cost reduction of at least 30%, and perhaps noticeably more. I'm assuming this is compared to the cost at start of Model S production.

 

[Auzie]

Some may label this article as promoting FUD, but the author asked perfectly reasonable questions. For sure, there is too much group think here on TMC. So much so, it's definitely unhealthy for evaluating this stock.

Most here are fans of Elon Musk and logical thinking. Pros on Wall Street who short stocks for a living are definitely some of the smartest people in the market. They definitely do their homework. For anyone who owns TSLA stock, it would be best to understand what they have to say.

For those who think only if everyone just posted positive comments here about Tesla then this stock will go up is delusional.

Having particular point of view is often a matter of perspective. My views on Tesla's future stem mainly from years of being a frustrated driver. My son, a "Wall Street finance pro", is a Tesla bear who never really owned a car nor does he plan to own one in the future. We see Tesla's present and future very differently and trying to convert one another to a common view is an impossible and a painful exercise. So far my account leaves his in the dust, not that I am happy about that, nor can I be unhappy about that.

Being delusional is also a matter of perspective. So far I feel fine living in my delusional world:biggrin: As long as I don't crash, which is a possibility.

After having "bear arguments discussions" I often think that both sides are correct in their own ways. Longs talk about car, bears talk about numbers (simplified). Where we diverge is how our correct assessments of different facts will influence the stock price. So far longs arguments seem to be prevailing.

These strong convictions on both sides are part of the reason that stock behaves as it does, almost like a predictable yo yo. Time will come when that pattern might change and the trick is to recognize that moment.

 

[Jack6591]

Panasonic Announces Reorganization of General Power Supply Business

http://panasonic.co.jp/corp/news/official.data/data.dir/2014/03/en140327-5/en140327-5.pdf

I know this is dated, my apologies for not searching to see if this subject has been covered. It seems to me that Panasonic is taking definitive steps to partner with Tesla.

If any of the stock gurus can elaborate on what an "absorption-style company split" is, I would greatly appreciate it.

Am I reading to much into this?

 

[TSLAopt]

But then would not Panasonic be delaying an inevitability, and risk losing their GF position to others, which then leaves them on the sidelines forever?

I think the only two reasons for a Panasonic delay could be (1) they truly believe there might not be enough demand for Gen3, or (2) they're trying to negotiate the best possible deal.

If the delay is due to (1), then Tesla must go elsewhere.

If the delay is due to (2), then I wonder if Panasonic really in such a position of strength with so much proprietary knowledge that no other potential partners posses? As you say, we don't know why Tesla is single sourced here.

(I'm not all that impressed by the WSJ article by Ramsey)

If Panasonic was an American company I would say there is no way they don't go in on this GigaFactory deal with Tesla. However, I am not so familiar with Japanese culture and how it might affect Japanese business decisions. Anyone on here have good insight on this?

 

[Auzie]

At this point we can only speculate about the gigafactory and Panasonic involvement. Facts that are known are that Tesla has committed to build it and they raised funds for it. Unknowns are partners and location. As soon as any positive news is out, regarding either the partner or the location, or any other concrete fact related to the progress of building it, stock might go up. I am not sure if negative news will be released. Say Panasonic already declined to partner into this venture, I find it unlikely that news like that would be released by either party. On the other side, positive news are more likely to be announced. If that is correct (it might not be) then the period with no news is more likely to have a negative influence on the stock and that is happening now.

 

[Cankooo1]

The reaction of Panasonic wonders me a lot, but from their point of view it makes sense to try to extract as much as possible from the deal with tesla. From their perspective if they enter the agreement with tesla and join venture in the Gigafactory they will have 20% of the factory considering investment of $1B and less than 3% of Tesla in shares which they currently own . The problem for them seems to be that this factory will be in competition with their current facilities. They know that capacity and efficiency will be much higher in the new factory and they will have to redirect all of their partners, suppliers and technology into the Gigafactory. Is this a good deal for them, or do they have other options?
Their situation is really complicated because if they decide not to participate in this factory will be disaster for them. Just look their other businesses:

Cameras: constant declining sales- smartphones are eating the market. According to Credit Swiss:
Mid-tier camera companies Panasonic, Fujifilm, and Olympus may not stick around, leaving only Canon, Nikon, and Sony competing in the top-tier and smartphones taking over the

TV’s their they are 4[SUP]th[/SUP] biggest producer but this business is not profitable at all- strong competition, small margins, constant R&D expenses where they can’t afford to cut because each year the technology shifting from HD to 4K, from LCD to LED to OLED. Panasonic is best known for their Plasma TV’s (outdated technology). They just can not catch up and for 2012 they posted more than $1B in losses from their TV division (same amount as their investment with Tesla)

Mobile phones- Panasonic Mobile Communications division 5.4 billion yen operating loss for 2013.
Panasonic Automotive Systems ; looks like one of the perspective directions for Panasonic

The have a lot of other businesses like: Eco Solutions, Appliances, Industrial Devices, Systems and Communications, Healthcare, and Manufacturing Solutions but most of them are losing money. Panasonic annual report 2013: http://panasonic.net/ir/annual/2013/pdf/panasonic_ar2013_e.pdf

Note that for 2013 they lost $13 billions, they are facing difficult and expensive restructuring, cutting jobs and many unprofitable productions.
From performance summary they noticed they have increasing sales of Car AV systems, automotive batteries and other car related products.
Panasonic is not in good condition and it is not profitable company from a long time. After their restructuring they will have to cut majority of their businesses and I believe Tesla is in much stronger position as high growing company a lot of cash available for investments and bright future. Panasonic needs to ensure their survival and I do not think they can afford to lose Tesla as customer and partner. Totally both companies are interdependent but in the end of the day Tesla can do it without Panasonic only with short term implications, as there are other manufacturers who are producing just the same batteries. Panasonic Battery division in other hand will not survive without Tesla.

Interesting statement from their report is that sales of batteries decreased in 2013 by 4% because of stagnant demand for laptops but profits increased from -20 billion yens in 2012 to + 8 billion yens in 2013. Note that Tesla bought a lot of batteries in 2013 so without them this division would be just the next losing money segment which needs to be cut.

We know that Samsung ( with $49 Billions of cash) approached Tesla last year for offer, but they were rejected. Now LG and Samsung are planning to build factories for automotive batteries as they see how big the opportunity is. I am sure that both companies will not hesitate at all to join Gigafactory project. (Further more without Tesla there is no future for EVs and respectively demand for automotive batteries). But I do not think they will have this opportunity. Each manufacturer will want to be partner with company which is vividly shifting the industry frontiers. Panasonic s not an exception they are just in really complicated situation with their restructuring.

The Japanese companies have different corporate culture. Their core value is to respect their key partners and Tesla is critical for Panasonic. Tesla has the same in their DNA (that is why I think Samsung was rejected as supplier even if they offered better prices)
I do disagree with the argument that Tesla needs to convince Panasonic that there is a demand for batteries. Nobody here doubt this neither Panasonic do, the negotiations are about return of the investment.
For me is just a matter of time for agreement to be reached. Tesla just need to make it profitable for Panasonic so they can reduce their losses.

Recent split was definitely sign for progress and in my opinion is related with Gigafactory as the purpose cited in the document is so “Panasonic will shift to a business focusing on Automotive power sources”

 

[adiggs]

Interesting background Cankoo1. I found myself wondering whether it would make sense on Tesla's side for Tesla to acquire the battery division of Panasonic. That would really be going it alone. Then I wonder whether an arrangement like that would make any sense to Panasonic (I suspect much less so).

 

[Jack6591]

Panasonic to transfer general power supply business

Panasonic to transfer general power supply business to subsidiary of Nippon Manufacturing Service

Panasonic Corp and Nippon Manufacturing Service Corp:Say Panasonic will conduct a absorption-type company split to transfer business relating to development, manufacture and sale of power supply and power supply components except for automotive-use, to Rich Corporation, a subsidiary of Nippon Manufacturing Service.Effective date Oct. 1.

While I'm still digesting the complexities of an "absorption-type company split", I am left wondering will it be possible to invest (buy stock) in Rich Corporation. Would Rich Corporation become the pure Gigafactory investment?

The name Rich Corporation just seems to flow right off the tip of my tongue.

 

[The Blue Owl]

Panasonic to transfer general power supply business to subsidiary of Nippon Manufacturing Service

Panasonic Corp and Nippon Manufacturing Service Corp:Say Panasonic will conduct a absorption-type company split to transfer business relating to development, manufacture and sale of power supply and power supply components except for automotive-use, to Rich Corporation, a subsidiary of Nippon Manufacturing Service.Effective date Oct. 1.

While I'm still digesting the complexities of an "absorption-type company split", I am left wondering will it be possible to invest (buy stock) in Rich Corporation. Would Rich Corporation become the pure Gigafactory investment?

The name Rich Corporation just seems to flow right off the tip of my tongue.

From your quote, Rich Corp receives everything BUT the automotive-use side. That part stays with Panasonic.

 

[Norbert]

Panasonic to transfer general power supply business to subsidiary of Nippon Manufacturing Service

Panasonic Corp and Nippon Manufacturing Service Corp:Say Panasonic will conduct a absorption-type company split to transfer business relating to development, manufacture and sale of power supply and power supply components except for automotive-use, to Rich Corporation, a subsidiary of Nippon Manufacturing Service.Effective date Oct. 1.

While I'm still digesting the complexities of an "absorption-type company split", I am left wondering will it be possible to invest (buy stock) in Rich Corporation. Would Rich Corporation become the pure Gigafactory investment?

The name Rich Corporation just seems to flow right off the tip of my tongue.

"Power supply" seems to refer to transformers and such. Why are we concerned with this?

- - - Updated - - -

I do disagree with the argument that Tesla needs to convince Panasonic that there is a demand for batteries. Nobody here doubt this neither Panasonic do, the negotiations are about return of the investment.
For me is just a matter of time for agreement to be reached. Tesla just need to make it profitable for Panasonic so they can reduce their losses.

That argument originates from quotes like these (from this previously mentioned Bloomberg article: Panasonic Hesitant to Commit to Musk’s Tesla Battery Gigafactory - Bloomberg)

“Our approach is to make investments step by step,” Tsuga said yesterday. “Elon plans to produce more affordable models besides Model S, and I understand his thinking and would like to cooperate as much as we can. But the investment risk is definitely larger.”

“Our battery production depends on Tesla’s sales, so we have been closely monitoring them,” Tsuga said. “We exchange our opinion on future sales on a monthly basis with Tesla.”

Plus, Panasonic seemed to have a hard time catching up with Teslas demand for cells in recent months. One can assume that Panasonic didn't anticipate the rising demand.

While we mostly agree that the Model E will sell in large numbers (assuming sufficiently reduced battery cell cost), there are different opinions about how long it might take to reach 100k, 200k, 300k, 400k and 500k volumes. Among other things, it will also depend on battery cell cost.

 

[kenliles]

Great discussion and excellent comments/analysis from Cankooo1. I'll come down on generally this side of the discussion. I think Elon has so many options at his disposal (including financing the entire factory on his own) that this will leverage into a make-break decision for Panasonic (ie, we'll agree to a financially-make-sense scenario, but you're either in this or we're moving forward without you). Most (if not all) the leverage rides with Tesla here. That said, it's a cultural reach for Panasonic. I'll come in early saying I think they will go in, but I won't be surprised to be wrong and see another path emerge.