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

[Matias]

Very interesting. Link or source?

It is only in finnish. But I trust the CEO of one of the world’s largest pulp sellers.

In this article

Stora Enson toimitusjohtaja varoittaa: ”Jokin Kiinan luvuissa ei täsmää”

 

[mrmage]

While the majority of cars are under warranty, service cannot have positive gross margin. If they were dealerships, then the OEM would pay for the warranty work, but Tesla is one balance sheet. Only when serivce is doing repairs Tesla isn't paying for do they even have income.

Previous revenue activities are annual service (maybe every 2 years) and tires (if people don't use a chain store). Thus a reason to get into accident repair/ bumper cover replacement since insurance pays (untill Tesla is the insurance provider, but then they theoretically get the premiums to offset the costs).

Service is funded by deferred revenue based on estimated warranty liabilities. If they have lower warranty costs than expected, they’ll improve service margins and cashflow. Repairs that are less than expected (e.g. better than expected reliability or more efficient service) could do that.

 

[StealthP3D]

Sometimes I think Anton is trolling. His claims are so hilarious that he can't possibly believe them, can he?

So Anton is either the stupidest auto analyst on Earth, or the most brilliant satirist writing today, who gets paid for humor that his employers take seriously while he secretly laughs at them. I just can't decide which.

You are more charitable than I am. I'll just call it how I see it: Anton Wahlman is a liar.

He purposefully lies in an attempt to profit from his TSLA short position and also to protect his beloved fossil car industry and oil companies. This most recent article claims that Ford will have a Mustang-inspired EV crossover for sale by the second half of 2020. While I wish that were true, it's not, and Anton knows it.

And the second half of the article crowing about Ford's electric pickup is obviously a pre-emptive attempt to prevent TSLA stock from rising too much when Tesla unveils their electric pickup. He is as scared as a kitten that has fallen into alligator-infested water because he knows that Tesla's unveiling of a car in America's most popular and profitable vehicle segment is going to excite investors something fierce.

 

[EVNow]

My Tesla Q2'19 Earnings Forecast

Summary:

• Automotive Revenue = 5.45B ~ 5.7B
• Automotive Gross Margin = 22% ~ 24%
• Total Revenue = 6.5B ~ 6.85B
• Gross Profit = 1.05B ~ 1.4B
• Income From Ops = -50M ~ +300M
• GAAP EPS = -$1.50 ~ $1.00
• Free Cash Flow = 400M ~ 1.5B
• Cash EoQ = 5.1B ~ 6.7B

Given low ASP, I don't see how margin can be so high. Remember most of the S&X sold was pre-raven inventory with pre-Raven COGS.

For Model 3 - we have the same issue. Since the mix has more SR+, difficult to see how the margin goes up.

 

[kbM3]

Given low ASP, I don't see how margin can be so high. Remember most of the S&X sold was pre-raven inventory with pre-Raven COGS.

For Model 3 - we have the same issue. Since the mix has more SR+, difficult to see how the margin goes up.

Is it possible that Tesla has to write off large expenses in obsolete machinery that was replaced during initial Model 3 pack production, and those won’t have to be applied against SR pack production on different machines?

It keeps coming back to the current COGS seems very high.

 

[EVNow]

He purposefully lies in an attempt to profit from his TSLA short position and also to protect his beloved fossil car industry and oil companies.

Its mostly "access journalism". If he writes good things about Ford (and GM) he gets access and some non-public information (or hints) about their future products.

 

[EVNow]

Is it possible that Tesla has to write off large expenses in obsolete machinery that was replaced during initial Model 3 pack production, and those won’t have to be applied against SR pack production on different machines?

Variable part of depreciation for 3 is low - about $500 per car. If the machine is truly obsolete then they wouldn't contribute to 3 margin, anyway. That machinery might be moved to GF3, like someone was suggesting.

BTW, I don't think we have a good idea about the SR+ COGS. Q2 ER should give us a better idea.

 

[jerry33]

Variable part of depreciation for 3 is low - about $500 per car. If the machine is truly obsolete then they wouldn't contribute to 3 margin, anyway. That machinery might be moved to GF3, like someone was suggesting.

Obsolete doesn't mean fully depreciated from an accounting point of view.

 

[mongo]

Service is funded by deferred revenue based on estimated warranty liabilities. If they have lower warranty costs than expected, they’ll improve service margins and cashflow. Repairs that are less than expected (e.g. better than expected reliability or more efficient service) could do that.

That allows for tracking costs by moving between buckets. How does fit into

I am convinced Tesla needs to make the service 20% gross margin to actually improve the service quality.

?

Service charging deferred revenue more does not improve the bottom line.

 

[Artful Dodger]

Tesla would do its' own cell testing independent of Panasonic. They're not going to just "trust" Panasonic on cell quality. Tesla procures additional cells from other companies so they need to test those cells as well.

That sounds like a reasonable assumption, until you read the very first line of the Job posting, under the heading "Role":

• "The Cell Quality team is part of Cell Manufacturing team within the R&D organization."

This particular job is for testing cells, but the role description clearly indicates that Tesla has its own "Cell Manufacturing team". Not just depending on Panasonic to make cells.

Or we can look at this Job item, listed under Responsibilities:

• Provide Design for Manufacturability (DFM) feedback to engineering as well as participate in DFM reviews

Sounds to me like Tesla will do new manufacturing, not Panasonic. But I guess we'll know more after "Battery and Powertrain Investor Day". These job postings are just hints regarding the overall plan.

Cheers!

 

[Artful Dodger]

Is Martin Tripp eligible for re-hire?

Only if he can wait for the new Romanian Gigafactory.

Cheers!

 

[Fact Checking]

Is it possible that Tesla has to write off large expenses in obsolete machinery that was replaced during initial Model 3 pack production, and those won’t have to be applied against SR pack production on different machines?

It keeps coming back to the current COGS seems very high.

No. There were two bigger pieces of production equipment that didn't work as expected during the original Model 3 ramp-up:

• The original LR Model 3 battery assembly lines at the Gigafactory - the automation failed and required a lot more manual work than expected. According to @Carsonight the new "Grohmann Machine" can do all their work and some more, and these old lines are being shipped to Shanghai - where their 3k/week capacity is enough plus manual work is cheaper as well. I.e. they don't have to be written off, and they make free space at Gigafactory 1.
• The "automated conveyance system" at Fremont. I believe most of this equipment was reused for the GF4 "Sprung Tent" - this is how it was possible to build it in 3 weeks and with near zero capex.

I.e. no write-offs of equipment that I can see.

 

[Stars aligned]

That sounds like a reasonable assumption, until you read the very first line of the Job posting, under the heading "Role":

• "The Cell Quality team is part of Cell Manufacturing team within the R&D organization."

This particular job is for testing cells, but the role description clearly indicates that Tesla has its own "Cell Manufacturing team". Not just depending on Panasonic to make cells.

Or we can look at this Job item, listed under Responsibilities:

• Provide Design for Manufacturability (DFM) feedback to engineering as well as participate in DFM reviews

Sounds to me like Tesla will do new manufacturing, not Panasonic. But I guess we'll know more after "Battery and Powertrain Investor Day". These job postings are just hints regarding the overall plan.

Cheers!

Could be. Or they produce cells for R&D with different chemistries / variables and once they found a release candidate order Panasonic and other suppliers to produce according to the specs.

As you said, at some point we will find out. More flexibility and confidentiality might be most important points if they decide for in-house production.

Edit: it will be difficult to match Panasonic's price, though. They might producing at a loss for Tesla, just to keep up with the latest chemistries, get a better chance to sell to Toyota etc. But that wouldn't give them the motivation to scale up and increase the loss.
Fits the picture.

 

[Chickenlittle]

I bet lora has already written the article on poor working conditions and manufacturing defects occurring in China gigafactory. She just needs things to start being built before publishing.

Why would she need to wait? Push it out now

 

[tander]

mrmage, post: 3850234, member: 94514"]Weekend conspiracy theory....
The first step is admitting you have a problem
We know that Tesla has invested like crazy on the product, factory and tech which drives near term revenue by producing a very nice product with margin.

We also know that Tesla has been underinvesting in certain aspects of the company (to the extent that posts on it are no longer allowed) which could hurt its long term success.

Tesla also has the cash to remedy said deficiencies but has been slow, much to the dismay of certain members.

We also know that EM is very smart (understatement), good with numbers, tech, and strategy. He’s not a people person (also understatement), but that has nothing to do with the deficient areas.

So why underinvest? Perhaps he has a very good reason.

What if Tesla might be able to get onto the s&p 500, by cutting expenses in certain areas? The resulting inclusion in indexes and prestige would totally be worth the short term pain.
Customer service is less important if you have a superior product.
How likely is that?
Seems like decent odds.
How big would that be?
Pretty big, especially if coupled with FSD and cars that appreciate.
Although it’s a long shot, would s&p inclusion and commensurate profits change everything overnight?
Not that much of a long shot, odds are pretty good in the next couple years if they prioritize profits v. expansion. Main criteria they are missing is 4 consecutive qtrs of profits, although I think sometimes they will wave a bad quarter if they have a profitable year (not absolutely sure)

 

[kengchang]

Why would she need to wait? Push it out now

This popped in my youtube feed and I had to screencap it.

 

[Dylan]

Yes, I thought that might be the case, but what are their plans?

They’re doubling the tax on company EV cars. Basically when you drive a company car you’re getting taxed by adding 4% of the MRSP to your taxable income. Next year it’s going to be 8%. Because other non-EV are getting taxed by 22% it makes an EV like Tesla wildly popular.

 

[NicoV]

They’re doubling the tax on company EV cars. Basically when you drive a company car you’re getting taxed by adding 4% of the MRSP to your taxable income. Next year it’s going to be 8%. Because other non-EV are getting taxed by 22% it makes an EV like Tesla wildly popular.

And that tax is added to your income every year. So it’s a significant amount over the lifetime/lease time of the car.

 

[StealthP3D]

Is Martin Tripp eligible for re-hire?

About the only thing Tripp would ever be hired for going forward is a crash test dummy!

 

[EVNow]

Obsolete doesn't mean fully depreciated from an accounting point of view.

If it's not being used now, it shouldn't contribute to cogs.