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

[Cherry Wine]

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.

Furthermore, aren't traditional automakers reliant on their more expensive models for margins? If they start to lose those, is there a point at which even cheaper models become unprofitable? By the way, it's good to have you back @neroden.

@TNEVol might know this precisely.

My non-lawyer guess is that March 11 is the date for Elon Musk's reply 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 further facts (ask Elon questions), 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 answering 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.

Will be interesting to see if the reply brief comes in prior to 3/11. It definitely could. I'm sure journos are watching the filings in that district like a hawk.

 

[neroden]

I will say this: cutting costs in the right places has been Elon Musk's singular engineering talent; I can list off multiple examples from SpaceX (computers instead of electromechanical parts, multiple small identical engines instead of lots of custom engines, stainless steel instead of expensive aluminum and composites), and multiple from Tesla (cutting the production cost of the Roadster when it ran over budget, slashing battery costs with economies of scale, multiple battery pack redesigns to cut costs, redesigning the final assembly lines to cut costs, slashing retail salespeople who weren't generating enough revenue to justify them, straightening out logistics where materials were being sent around the world twice, using the motor as a heater to avoid a separate heater, etc. etc.).

So for those worried about whether Tesla will cut production costs enough to make a good profit on Model 3 -- I am not at all worried about that. It's one of the things he has a track record of actually being good at.

 

[Fact Checking]

Will be interesting to see if the reply brief comes in prior to 3/11. It definitely could. I'm sure journos are watching the filings in that district like a hawk.

You can watch the filings too:

United States Securities and Exchange Commission v. Musk (1:18-cv-08865), New York Southern District Court​

But it's rare for such key filings to come early, every extra day can be used to refine the answer brief. I'd expect a March 11 filing, unless Elon's lawyers are feeling super confident. But since he switched lawyers a few days ago I wouldn't count on that, they might even ask for an extension of the deadline.

 

[jhm]

I'm honestly a bit surprised that they went the route of making Autopilot cheaper instead of introducing a subscription based model. Charging $40/month over the course of 10 years, Tesla would get $4,800. The customer will like it more because they don't necessarily pay for the entire length of the Autopilot. So say someone buys a 3 and owns it for 4 years paying monthly, they only paid for the time they actually used the system($1,440). Then the next owner of the car can decide if they want to pay monthly for it. It's win for customers and Tesla gets long term monthly revenue.

Autopilot revenue is deferred correct? So Tesla isn't recognizing that revenue at the moment. Are they waiting for feature complete to recognize it? And if so, at what point does Autopilot become feature complete? If all Autopilot revenue is deferred right now, switching to a subscription based model wouldn't hurt their profits right now.

I'd love to see this go to a subscription model. I think I could reduce ad valorum taxes and other policy issues in some places.

 

[AcesDealt]

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.

Ok that's a legitimate answer. Thanks. Do we know the basis of thinking Grohmann made that much of a difference? How are you quantifying that. I was willing to grant ~500$ but that's just a WAG. I know the typical module add-on cost used to be ~30% so perhaps $1500-2000 is the entire cost of that part of the process.

I agree cash margin is substantially higher. They will also benefit from running up revenue on high volume even if it's not particularly profitable revenue. I'm not worried about either profit or cash flow necessarily, but I am a bit worried about the decision processes at HQ. They seem erratic.

To some extent we know the 8k$ gap MUST be somewhat filled because they aren't THAT crazy to lose 5k$+ per vehicle, but it does open up questions. Nowhere is it written that they have to have a 35k$ car in perpetuity. It is rightfully a function of what they want to sell and how it stacks up to competition. So the solution to this puzzle is that this model is going to go away imo. The benefit of the approach they have made is that they can fill the demand queue up hopefully (increase wait times for base models) and then incrementally raise the price.

 

[sundaymorning]

My understanding is that Tesla is a tool used to slowly kill every other manufacturer with cutthroat pricing. Less overhead, Gigafactory helps them do this. Elon should’ve never guided for profitability going forward. Tbh the company should be taken private and come back in 10 years paying dividends. Would reduce a lot of the negative headlines too

Going private is dead. It’s out of the picture, move on.

 

[Big Earl]

link?

www.tesla.com

 

[TSLA_Hopeful]

Is anybody interested in creating a Tesla volunteers site where people interested in Teslas can volunteer to give a test drive? I know I would be the first to sign up for that. Teslaarmy.com or something lol.

If someone doesn't do it in a few months, I would be happy to make one. I'm not the best front end person though.

 

[AudubonB]

I haven't the blue blazes first notions of an idea what that word possibly could be; regardless, I love it as it's one of only a few English-language words with four consecutive vowels.

Outside of that, I'll bet it possesses no justifiable reasons for its existence.....

OT


It's derived from "squeal" or "squeak" and is the noise a fangirl makes when she is really excited.

(Listen to a tape of a Beatles concert if you don't know what the noise is.)

Great.

I win my bet.

 

[neroden]

Ok that's a legitimate answer. Thanks. Do we know the basis of thinking Grohmann made that much of a difference?

Ah. People were talking (rumor) pack-level costs of $150 - $200 / kwh, against cell-level costs of (again rumor) $100/kwh. The "semi-automated" lines had a lot of employees and were slow -- high production expenses.

The Grohmann line was said to be faster, simpler, and cheaper -- and it's fully automated. I'm guessing it removed most of the cell-to-pack costs, though not all certainly. Removing the labor costs on cell-to-pack is a huge deal; pack materials are pretty cheap.

The leaked letter talking about taking pennies out of each step of production to get down to the targeted production cost has some interesting assumptions in it -- it's clearly assuming a large cut in production cost already, relative to reported Q4 numbers. I assumed that this had to do with the Grohmann pack line (which had been mentioned in the Q3 conference call) and it seemed like it was in the ballpark of $4K/$5K difference. So that was my corroborating evidence.

I agree cash margin is substantially higher. They will also benefit from running up revenue on high volume even if it's not particularly profitable revenue. I'm not worried about either profit or cash flow necessarily, but I am a bit worried about the decision processes at HQ. They seem erratic.

Always have been. I wish they'd get their broken software dev practices fixed.

To some extent we know the 8k$ gap MUST be somewhat filled because they aren't THAT crazy to lose 5k$+ per vehicle, but it does open up questions. Nowhere is it written that they have to have a 35k$ car in perpetuity. It is rightfully a function of what they want to sell and how it stacks up to competition. So the solution to this puzzle is that this model is going to go away imo. The benefit of the approach they have made is that they can fill the demand queue up hopefully (increase wait times for base models) and then incrementally raise the price.

Most likely IMO is to delete the true-base $35K model after a year and have only "Standard Plus", which I think is at a viable price at $37K. They've done this before, with Model S (losing the 40, then losing the 60). And actually with the Roadster, now that I think about it (feature creep and price creep happened as the 1.0 was replaced with the 1.5 and then the 2.0 and then the 2.5)

 

[KarenRei]

Going private is dead. It’s out of the picture, move on.

At today's stock prices, not so dead But it'd require buyers without excessive demands that they want to impose - something which clearly didn't exist last year (at least none wanted to get involved in that environment).

If some big player(s) see Tesla as being poised to spring, and the price is low enough, an acquisition could very much be in the cards. Do I consider this likely? No. But possible? Yes, certainly.

 

[KarenRei]

Is anybody interested in creating a Tesla volunteers site where people interested in Teslas can volunteer to give a test drive? I know I would be the first to sign up for that. Teslaarmy.com or something lol.

If someone doesn't do it in a few months, I would be happy to make one. I'm not the best front end person though.

I plan to do this when I get mine.

 

[Joe F]

In spite that fact that 90% of my purchasing happens via Amazon prime, I am not a fan of the 100% online model. Car buying is an emotional process--folks need to connect with their cars and when folks are plunking down $100K for something, then expect a bit of hand holding along the way.

So those of us, including myself over 2 years ago, who plunked down 6 figures without hand holding are what, unemotional?

Not everyone fits into the hand wringing emotional buyer you imagine. Check the polls before lumping us into the same bucket.

 

[Zaxxon]

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 […]"

I recommend the soundtrack to Netflix's The Dragon Prince. Seems to fit the mood of the tweet cemetery...

To some extent we know the 8k$ gap MUST be somewhat filled because they aren't THAT crazy to lose 5k$+ per vehicle, but it does open up questions. Nowhere is it written that they have to have a 35k$ car in perpetuity. It is rightfully a function of what they want to sell and how it stacks up to competition. So the solution to this puzzle is that this model is going to go away imo. The benefit of the approach they have made is that they can fill the demand queue up hopefully (increase wait times for base models) and then incrementally raise the price.

I also wouldn't be surprised by the $35k base-base going away once folks who were promised it are given the chance to buy. The $37k SR+ is a wonderful base model, and even lines up defensibly with the original $35k goal once it's inflation-adjusted.

That said, I think you may be focusing too much on getting all they way down to $35k. They're just not going to sell a ton of $35k Model 3s if the analysis I made last night holds any merit. It's far too tempting to add a few options, and while folks at the $35k level aren't as spendy on options as those at the $50k+ level, $35k is not at all an econobox--folks typically will add options at that level.

It would be entirely feasible to me for Tesla to have realized they're just slightly negative on the base-base and released it anyway given that the higher-trim models are likely to be far more popular and the increased demand unlocked by dropping the entry price all the way to $35k brings its own additional cost savings.

 

[humbaba]

Is anybody interested in creating a Tesla volunteers site where people interested in Teslas can volunteer to give a test drive? I know I would be the first to sign up for that. Teslaarmy.com or something lol.

If someone doesn't do it in a few months, I would be happy to make one. I'm not the best front end person though.

Has Tesla said they are ending test drives? Because that is still an option on the site. I don't see any reason why they couldn't arrange a test drive from a service center.

Schedule a Test Drive

 

[KarenRei]

Well, that's the bell. -7,84%, 25th worst day in TSLA history. Second worst day this year (worst this year was 1/18/2019, -12,97%).

Time for a cooldown weekend. Who's up for a rocket launch?

 

[Carl Raymond]

Just read the follow on conversation from Elon's last tweet. People are considering buying the SR *to save money*.
Time for a 1,3,5 year cost comparison against the most popular ICE alternatives.
If the cost curve lines have crossed, and pretty sure they just have, Teslas sell themselves.
Teslanomics... this is right up your street.

 

[AcesDealt]

Ah. People were talking (rumor) pack-level costs of $150 - $200 / kwh, against cell-level costs of (again rumor) $100/kwh. The "semi-automated" lines had a lot of employees and were slow -- high production expenses.

The Grohmann line was said to be faster, simpler, and cheaper -- and it's fully automated. I'm guessing it removed most of the cell-to-pack costs, though not all certainly. Removing the labor costs on cell-to-pack is a huge deal; pack materials are pretty cheap.

The leaked letter talking about taking pennies out of each step of production to get down to the targeted production cost has some interesting assumptions in it -- it's clearly assuming a large cut in production cost already, relative to reported Q4 numbers. I assumed that this had to do with the Grohmann pack line (which had been mentioned in the Q3 conference call) and it seemed like it was in the ballpark of $4K/$5K difference. So that was my corroborating evidence.


Always have been. I wish they'd get their broken software dev practices fixed.



Most likely IMO is to delete the true-base $35K model after a year and have only "Standard Plus", which I think is at a viable price at $37K. They've done this before, with Model S (losing the 40, then losing the 60). And actually with the Roadster, now that I think about it (feature creep and price creep happened as the 1.0 was replaced with the 1.5 and then the 2.0 and then the 2.5)

One of the things that occurred to me is that if this base model were temporary, what would be the evidence? One thing is that they wouldn't put anything into it that cost a lot of money to develop. Well what do we have here? No metal roof. That's interesting. You have something that is very likely unprofitable and yet you aren't even trimming off all the cost items to make the financials work (as well as drive people up the pricing stack). There are other bonuses sprinkled in that make this model even better than expected. That's odd. I would have expected the opposite. So I consider this the LESR model (of two evils?) perhaps.

Now if they can't sell 7k/week with this price configuration and this tax rebate structure we're in trouble.. but I'll guess the 35k$ is gone by end of this year.

 

[MarcusMaximus]

Has Tesla said they are ending test drives? Because that is still an option on the site. I don't see any reason why they couldn't arrange a test drive from a service center.

Schedule a Test Drive

Their messaging yesterday re:test drives wasn’t particularly clear. I guess we’ll find out.

 

[SOULPEDL]

I saw an old ICE friend and I told him the $35K news.
He asked me "What's the difference (from yours)." Exactly! He was dipping his toe in the idea of owning one.
Here it comes, Demand Hell... organically, lol. Let's see how many we can catch like this despite no rewards.