Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[gene]

So, there is a lot to parse about what happened in the past 24 hours. However, the one thing I am most surprised by is the negative reaction about Tesla going to all on-line sales.

I do get that people want to sit in and drive a car before they buy it.

However, this is hardly difficult to do with a Tesla.

Almost every single Tesla owner is wildly enthusiastic about their car and incredibly eager to show it off and share it with others.

Through car meetup events, car shows, and simply friends and neighbors, there are untold opportunities to experience a Tesla in person before buying.

*sugar*, I put down a $50,000 deposit on a Tesla Roadster that I won't get to see or sit in for three years!

I think people who are interested in a Tesla are going to hear plenty from their friends, neighbors and car enthusiasts.

Tesla is who has all the data in order to compare store sales vs. online sales. They have the data, they have the brains as Tesla has already done the impossible, so I trust them that they have made the right decision.

 

[Nocturnal]

Some anger is brewing in the online community. Tesla's rep apparently said Tesla made FSD free for all those who purchased EAP free due to the price drop recently. This offer is only good for cars bought in 2019. 2018 owners are currently pissed.

I have a feeling every early adopter will end up getting free FSD or free autopilot..or free something if you bought both for all customers who purchased before yesterday. Tesla is usually like that so time will tell.

It sounds like people who bought EAP may be getting free FSD now. If so then that's reasonable.
https://i.imgur.com/IV5cWmz.jpg

 

[Singuy]

ummm... I realize there are interests that want to whip up a frenzy, but as someone who bought EAP in late 2018 there are two things that make me happier about the current arrangement:

1) EAP is not the same as the new autopilot and has some features that were moved to FSD
2) The $3k for FSD with purchase that was available then has been restored to us

So basically we are getting more from EAP than someone paying for AP now. And we can have FSD as if we'd originally purchased it, no harm no foul.

That is, IMO, very fair.

So people who bought at the end of the year got to enjoy the tax credit but didn't expect Tesla to drop the price on all models right when the tax credit expired. So essentially those who bought on Jan 1st get either free FSD or free AP for a difference of 1750. So 2018 people are like..okay so make FSD or the option for AP cheaper.

 

[jhm]

Strongly suspect the SR has fewer cells. I think the Grohmann machine is much better at producing packs with "missing cells" than the previous production lines, and they're taking advantage of that.

Interesting. Do you think they are doing that with the MR as well?

 

[Nocturnal]

This is certainly true, but usually people want to see the latest iteration. I still share with others, but at six years, it doesn't even have curb feelers.

Surely test drives will still be possible at SCs or something right?

 

[neroden]

Was just about to come share that. (But removing Fred's no-source-attribution link and replacing it with the actual source. God, that drives me nuts when sites do that.)

So, we have:

Nissan	Tesla	Key Features
Leaf S Plus $36.5k	3 SR $35k	226/220 mi EPA	Leaf SV Plus $38.5k	3 SR+ $37k	226/240 mi EPA, fog lamps, improved audio (plus leatherette and powered/heated seats in the Tesla)	Leaf SL Plus $42.5k	3 MR plus AP $43k	226/264 mi EPA, leather and heated seats in the Nissan, plus Nissan ProPILOT Assist & other Autopilot-like features

[TR]
[TR] [/TR][/TR]

[TR][TR][TR]

That's... not a very flattering comparison for the Leaf. The Leaf will have the full tax credit for the rest of this year (at least), so it's got that going for it. But I'm hard-pressed to come up with a reason why I'd buy any of those Leaf models over the similarly-priced 3.[/tr][/tr][/tr]

That's brutal. The Bolt looks even worse. The Hyundai/Kia models don't impress either.

This is throwing down a gauntlet. Let's take a look at gas cars. Most of the top sellers fall in these categories:
(1) $10-$15K base price bracket
(2) $20-$25K base price bracket
(3) "SUVs" or "CUV"s in the $30-$35K price bracket
(4) Pickups in the above three price brackets

If you work your way down the top sellers, you get eventually to the Lexus RX, in the $40K bracket, and the other "semi-expensive" cars. I think every car selling for that price or higher which is not electric is doomed. This includes the entire lineups of Lexus and Audi; of BMW and Mercedes in the US; etc.

There are a lot of cheaper cars, though. Brands which make models which sold better in the US than the Lexus RX last year are:

- Tesla (Model 3)
- Hyundai (many models)
- Honda (Accord, Civic, CR-V)
- Nissan (several models)
- Chrysler (Pacifica)
- Subaru (several models)
- Dodge (several models)
- Jeep (several models)
- Mazda (CX-5)
- Toyota (many models)
- Ram Pickup
- Ford (several models)
- Chevy (several models)
- GMC (Sierra, Terrain)

...and interestingly, nothing else. (Though Kia seems to be rising fast in January/February, so it should count.) Notice the complete absence of German carmakers. Also, Chrysler and Mazda seem very precarious.

Even within that, the gas *sedans* have all been taking a nosedive in sales, except the Hyundai Elantra.

So if Tesla can build out its Model Y factory (yeah, I know, requires lots of capex), that will knock out most of the station wagons (sorry, "CUVS"/"SUVS"). I would anticipate Tesla being able to hit price parity with the station wagons which tend to cost more than the sedans (for no apparent reason, perhaps demand).

The Pickup should knock out the more expensive trucks.

 

[mongo]

This is handwaving. The actual details don't support the general arguments.

What details?

A little skepticism of management guidance is surely called for by now, right? The math problem is right in front of you. Try to do it. How do you get from 43k$ gross cost per model in Q4 to something substantially under 35k$?

Say you build 4,000 cars a week, and your production line costs $40,000,000 a week to run. Each car has to carry $10,000 of the line cost. Now bump your volume to 8k per week. Each car only carries $5k of the line cost, so the gross margin on each car just improved by $5k. Now install a better pack line in GF1 that produces packs that inherently cost less and is also using less cells per pack. Now decontent the vehicle a little. Add in saving because all your vendors have less fixed cost per part.
Boom! profitable lower priced car.

 

[Fact Checking]

Anyone know more about how Musk's 11-Mar date for responding to the SEC charges is likely to play out? Is this will something that will happen before a judge? Is there a chance of dismissal (or punitive action) then, or is it pretty much guaranteed to drag on longer?

@TNEVol might know this precisely.

My non-lawyer guess is that:

March 11 is the date for Elon Musk's answer brief. Based on that brief the judge would either:

• find Elon not in contempt and dismiss the contempt proceedings,
• or order a contempt hearing,
• or find Elon in contempt

A contempt hearing is the typical outcome, where the judge can find new facts (i.e. ask Elon questions who will be present in person), after which the judge can issue a ruling straight away from the bench, or at a later date.

I believe the judge has broad procedural leeway, so there could be many variants of this: for example she could order the SEC to file a reply brief to Elon's answer brief, before ordering a hearing.

Most contempt findings require willful violation of a settlement, and while the SEC offered a legal pathway to avoid having to prove willfullness, I didn't find their case law persuasive: it cited a case where the defendant admitted to the violation of a settlement, but argued that it was not willful. No such admission exists here, in fact I submit that Elon obviously doesn't believe he violated anything, so such an admission won't exist in the future either.

So even if Elon did violate the settlement, the SEC would IMO have to prove that Elon did so willfully, which is a tall order.

More importantly, I don't think the settlement was violated, and maybe Elon's lawyers can argue this in their March 11 answer brief.

But in any case, March 11 is the answer brief filing deadline, not a hearing date. Any hearing would be scheduled afterwards.

But again, I'm not a lawyer, so take this with a grain of sand.

 

[humbaba]

So, two things with that 80% number. First, it only represents the final step in the buying process. It does not capture what it took to get the customer to that point--test drives, visits to the store to kick the tires, get questions answered about charging, warranties, whether the white sets clean up OK, etc).

Second, the 80% only represents a small, small percentage of all cars sold. Most of this are still flowing through traditional brick-and-mortar stores. For those buyers, "normal" is going to look at the car, touch, the car, take the car for a test drive, etc. If you are going to get folks to change their buying behavior, you need to offer them some substantial benefit. Since folks keep using Amazon as an example, let's look at that. When they were just a book seller and battling B&N, Borders, etc, they offered two advantages over their competitors: 1) greater selection and 2) lower prices. With this move, not so sure what the tangible advantage is for a 100% online retail model.

I don't disagree with your broader point, but this move does not seem well thought out--it seems like one of those things that sounds great in Silicon Valley but falls flat in the real world (and I say the as a denizen of Silicon Valley).

Thank you for your well written post. It doesn't convince me, but it is clear you have a rational basis for your view and I'm not sure either of us will sway the other. Which is fine. So, in the interest of discussion rather than arguing, you posit Amazon's advantages over competitors and ask what does Tesla have.

Well, I think that it is clearly a disadvantage to only sell online -- its really a matter of to what degree they are disadvantaged. The flip of that is that there is also clearly a cost to maintaining brick and mortar -- its really a matter how deeply does that cut into the bottom line.

And I think this takes us to a fundamental difference of opinions. Your view is that it "does not seem well thought out" whereas I think that it was a considered decision. Now, I can't offer anything substantial, no actual proof to back up my opinion. Its no more valid than yours. But it is mine and I like it.

 

[neroden]

So if you take the ASP in Q4 for model 3 at ~54k$, and margins at ~20% then cost to manufacture is 43k$ for the mixed options vehicle that this represents. I simply don't think you can start pulling off pieces of that sufficiently to get anywhere near profitable for a 35k$ to 37k$ vehicle and that's at the gross profit line. Let's say you want to get to 30k$ gross cost for the base model in order to sufficiently justify selling it, and that it covers op. ex and so on. Someone show me how you get from 43k$ to 30k$? The battery is less than 4k$ of that.

No, the battery is more than you think. Before the new Grohmann machine the battery pack might have been anywhere from $9000-$12000 in costs. Fewer cells won't remove too much cost (though it could be as much as $5500, more likely in the ballpark of $2000) but improved pack assembly should cut costs more ($1000-$2000).

I'm guessing they've shaved $4000 off of battery costs, which gets you to $39K. The next $4K is the "hard part", but some of the per-unit costs in the P&L statement were really allocated depreciation and are actually partly fixed costs; the cash margin is higher. The teardown was talking about $28K in cash construction costs, though they probably didn't estimate the battery pack cost correctly (I suspect they estimated something more like what Tesla is achieving *now*).

At the same time, the base model after incentives is now ~29k$ or a mid-range Honda Accord. That's entirely too inexpensive. They should sell too many of them. I think they are going to empty off the reservation list and jack the prices up.

Wouldn't be surprised at that. I personally think the $37K model is sustainably profitable, and the $35K model might be barely breaking even -- and may be discontinued after all reservation holders get the chance to get it.

 

[Bobfitz1]

We also need to take into account capacity constraints. To get to 7.5M by 2025, Tesla needs 15 factories the size of NUMMI. So, they should be building 3 such every year … I doubt it will be that many by 2025.

Absolutely. At some point some constraint must make the S curve level off. It's just hard to know at what point Tesla's out of the box technical and business innovation can no longer keep it going. If most of those 15 were built in China and financed there, Tesla might get that many in 6 years. Given the startling pace at which factories can be build in China when the right leaders decide to put the pedal down to the floor. But since U.S and European factories take much longer, I agree 15 seems unlikely by 2025. Will be interesting to see if they ever reach a point where as much capital as needed to build super fast becomes available.

 

[johnnybgood888]

S&X numbers are perfectly normal for S and X in January and February. They're seasonal low months. Most of these S and X were purchased during the period of either higher prices in general, or after the elimination of the 75D but before new lower-cost variants were made. There's nothing wrong with them at all.

3 has no previous January and February to compare with (last ones were in the middle of scaleup). December is an annual high month, and that was surely amplified by the pre-credit-reduction rush.

Look at past data for seasonal trends before you rush to judgement.

By the tone of that poster, why do you assume he/she is here for a reasonable discussion? If they wanted a discussion, it would be a question asked as to why the numbers are lower than the previous month(s). They are just stating their FUD as if it's fact.

 

[ZachF]

Any Tesla Killer news today? Or did they all get Killed?

Well, Audi is coming out with a car that will put the hurt on a 2016 Model S in 2025...

 

[KarenRei]

LOL!

Thread by @TeslaHistorian: "THE 35K MODEL 3 TWEETSTORM Put on some sad violin music and press F to pay respects to the latest addition to the short thesis cemetery. Her […]"

 

[AcesDealt]

By laying off 7% of your staff and then getting another 6% cut by closing stores, for starters? Come on, I know you're better than this.

Also:

• New pack design
• Increased production rates (lower depreciation per vehicle)
• Lower raw materials costs (check out nickel sulfate, lithium carbonate, and cobalt prices)
• Lower battery costs in general (they've been falling fast over time, even when raw material prices were rising)
• General process improvements

Separate out the op.ex savings from Gross profit. I'm talking about 43k$ in Q4 average gross cost. That also takes raw material factors out since we are using recent numbers. All the rest of these you have to actually model. The devil is in the specific numbers. A drop from 43k$ to 35k$ or less is a big gap to explain. If the 35k$ model is profitable now or even near future then the Q4 results would have been vastly more profitable than they were.

What details?


Say you build 4,000 cars a week, and your production line costs $40,000,000 a week to run. Each car has to carry $10,000 of the line cost. Now bump your volume to 8k per week. Each car only carries $5k of the line cost, so the gross margin on each car just improved by $5k. Now install a better pack line in GF1 that produces packs that inherently cost less and is also using less cells per pack. Now decontent the vehicle a little. Add in saving because all your vendors have less fixed cost per part.
Boom! profitable lower priced car.

Right. Now use actual numbers starting with Q4 of last year.

 

[ZachF]

LOL!

Thread by @TeslaHistorian: "THE 35K MODEL 3 TWEETSTORM Put on some sad violin music and press F to pay respects to the latest addition to the short thesis cemetery. Her […]"

F

 

[MarcusMaximus]

Yikes. You'd never believe I used to be good at math 40 + years back.
Forgot that if increase % is constant year over year projection is linear,
rather than the actual yearly increase amount being constant.

In fairness, the derivative of the function is probably linear.

 

[neroden]

So, two things with that 80% number. First, it only represents the final step in the buying process. It does not capture what it took to get the customer to that point--test drives, visits to the store to kick the tires, get questions answered about charging, warranties, whether the white sets clean up OK, etc).

Yeah, well, apparently it actually represents the percentage who didn't take test drives. Other questions can be asked over the phone or by email; and "sit in the car, make sure you like the seats" tests will still be possible at a few big city galleries.

Second, the 80% only represents a small, small percentage of all cars sold. Most of this are still flowing through traditional brick-and-mortar stores. For those buyers, "normal" is going to look at the car, touch, the car, take the car for a test drive, etc. If you are going to get folks to change their buying behavior, you need to offer them some substantial benefit. Since folks keep using Amazon as an example, let's look at that. When they were just a book seller and battling B&N, Borders, etc, they offered two advantages over their competitors: 1) greater selection and 2) lower prices. With this move, not so sure what the tangible advantage is for a 100% online retail model.

All-electric cars with Supercharger access delivered to your doorstep

 

[mongo]

Maybe it's in Tesla's best interests to weed out customer that do not want to buy on online. Possibly less support needed with the car interface...

(someone better at graphics than I could make the Venn Diagram...)

 

[jhm]

Naive investors might believe that he had turned into an actual elephant?!?

Nah, it was just to throw off TSLAQ, who have known all along that he is actually an elephant.