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

[Carl Raymond]

What I find interesting about this move to close stores and lower prices is that Tesla is setting themselves up to be the lowest fixed cost manufacturer of EVs on the planet.

He’s left the American manufactures in the dust, lapped the Europeans and now gunning for Toyota.

I've been thinking about the stores. Certain gallery stores will remain.

I believe what Tesla is really up to is killing the concept of the test drive.
What is the point of engineering the heck out of the making of the car to shave every precious man.minute, if the buyer is going to tie up a salesstaff for hours?

We might find more stores remain than headlines suggest, all without test drive vehicles. But the message "we're cancelling test drives" doesn't sit well. I think people will get used to it. With a product so much better to drive than any ICEV, the test drive really is just a time wasting joy ride.

 

[omarsultan]

Tesla software costs are in SG&A, not COGs, so gross margin should be essentially 100% for EAP and FSD. In reality, part of the revenue from EAP and FSD is not booked upfront, but instead registered as deferred revenue and booked to the P&L over several years - this is a reserve for future software development commitments. This means that the actual revenue booked upfront is less than 100% of the amount paid by a customer, but this is still at 100% gross margin. The deferred revenue is also gradually booked at 100% gross margin, but offsets SG&A costs.

The hardware is the same for all cars. AP hardware costs are in the base COGS for every car whether or not you have bought the software upgrade.

OK, apparently I was wrong and Tesla does things a bit differently.

 

[Sean Wagner]

the test drive really is just a time wasting joy ride.

If one develops a fetish for yellow leather jackets and they throw a Volvo EV into the mix... wee! On the other hand, noone craves joyrides. Positively ludicrous.

 

[Krugerrand]

Sometimes the company does dumb things. It's OK to point that out. A little skepticism is healthy for everyone involved. I am long on TSLA because Elon & Co tend to learn and adapt.

First, nobody said the company hasn’t done dumb things.

Second, there comes a point when skepticism is no longer required. If Tesla hasn’t already proven enough to you, then you’re not somebody who can ever be made happy. You’re being skeptical just because you want an excuse to criticize if things don’t go exactly how you’d like them to go.

 

[SebastianR]

Although the EU regulation that I posted is written in plain English, I am not fully confident in answering the question.

The regulation actually covers distance selling, i.e. a sale not done in a shop and its scope is not defined by shipping. In fact, it covers also door-to-door selling.

It is not a big deal: the EU legislation also allows sellers to deduct costs for usage of the product. 1600km / 7 days and beyond is certainly quantifiable use. So while I don't think the whole thing applies to Tesla anyways (there are exemptions for custom made products, this is not really a mail order purchase as you still have a delivery center where you pickup the car etc.) - even if it would apply to Tesla they could very nicely make anything beyond their own 7days / 1600km very costly.

To compare: Nextmove wants 249 Euros per day/200km (if you take the one-day rental) TESLA Model 3 - Elektroautos mieten - Elektroautos einfach mieten

You know, I've realized something.

Some people are acting like Tesla has burned through demand levers (I've already pointed out why this is sorely wrong, in particular to how little of the world they're actually selling in, and only expensive variants in most of the world, but that's neither here nor there). But in actually, precisely the opposite happened in one regard:

Tesla is resetting a previously pulled demand lever to a no-longer-pulled state: stores.

Indeed. The way I look at this is that Tesla is filtering for a specific (non-problematic? easy to deal with?) group of buyers. So far they "discriminated" against those who didn't want to buy the LR/MR version, now they "discriminate" against those who want a physical store. As long as they don't offer all versions in all countries with full set of stores, referral programme, leasing - the works, I'm neither concerned, no surprised if they tinker with who, when, how, what they offer to match their production ability.

Regardless of this all: I'm a) super happy the Masterplan I is completely, utterly, without a doubt a reality now. I'm b) happy they offered the 35k version over leasing. Not just from a GAAP perspective but also from a "scaring the living daylights out of the competition perspective".

Would have preferred the 'leasing model 3' demand lever vs 35K car at this point in time.

35k all the way (see above).

 

[capster]

Tesla just delivered the Five Point Palm Exploding Heart Technique to the other automakers. They are dead, Wallstreet just doesn't know it yet. The CEOs at BMW, Audi, Mercedes, Volvo, Jaguar, GM, etc., probably wanted to jump off a bridge last night. While the price cuts probably do mean that there wasn't enough demand at the higher prices, Elon did say that they will probably be profitable in Q2 with these lower prices (and demand will be sustainable now). This means they have found ways to save money. Not only can the other auto makers not match Tesla's new prices on their EVs, but their ICE sales are in BIG trouble now too. Even the slower thinkers on Wallstreet are going to start figuring this out, and the SP will reach new highs. I just have no idea how long it will take for them to put 2 and 2 together....

Peace was never an option.

Or so I’ve heard...

 

[omarsultan]

First, nobody said the company hasn’t done dumb things.

Second, there comes a point when skepticism is no longer required. If Tesla hasn’t already proven enough to you, then you’re not somebody who can ever be made happy. You’re being skeptical just because you want an excuse to criticize if things don’t go exactly how you’d like them to go.

Dude, that was an awful lot of made-up stuff to pack into one statement. Anyway, there is no point in continuing this conversation. I am glad your certainty works for you. We'll just have to disagree on this.

 

[EVNow]

OK, apparently I was wrong and Tesla does things a bit differently.

Which company puts software development in COGS ?

 

[mongo]

Which company puts software development in COGS ?

PC vendors that bundle Windows?

 

[anthonyj]

I wouldn’t be driving a Tesla if there were no test drives. I hope they don’t get rid of test drives, maybe the service centers will offer them? Test drive sells the car. No test drive would work in Cali since everyone and their mom has a Tesla, but elsewhere that is a bad move.

 

[wipster]

I am so MAD! I just got back from a drive AFTER buying FSD....the car DID NOT drive itself?!?
WTF Elon....I am going to DEMAND my money back!

Bankwrupt any day for sure!

I'm just mad you just got back from a drive! Well, jealous really... ;-)

 

[Intl Professor]

I found it overwhelming remarkable in my early days on using TMC to research Tesla that the number of folks had such high praise for their Tesla. Not that I’ve checked, but I don’t believe I’d have found anything close to those numbers in any other car site. That sealed the deal for me, and I personally found nothing that I needed to see other than what the Tesla web site had to display when it came time to order. I know what I like and didn’t feel the need to spend time kicking tires. But that’s just me. I understand that others may not feel the same.

Given age, girth, overall stiffness, I had to get in and out of an M3 before final purchase. I had already driven a Model S where the same issue existed. Now I'm "relearning" how to twist after side-saddle sit. Getting the last leg in is still a problem but a hand helps.

If I can do it almost anyone can. When TSLA hits $4,000 if I last that long (and still driving) will probably upgrade to an MX if refreshed.

 

[2virgule5]

This truly is f*d up *sugar*.
How can the estimate be 0.52 for 1q19?

They will continue to manufacture "missed expectations" as long as it works for their masters. Literally this could go on for years until their viewership (currently 65+) is on the edge of the grave.

 

[KarenRei]

I wouldn’t be driving a Tesla if there were no test drives. I hope they don’t get rid of test drives, maybe the service centers will offer them? Test drive sells the car. No test drive would work in Cali since everyone and their mom has a Tesla, but elsewhere that is a bad move.

People seem to keep forgetting that Tesla can reverse this situation whenever or wherever they want. For now, the price reduction is driving way more demand than test drives would have. But if they ever decide they want test drives again - say, 6-12 months from now? They can, and they've saved 6-12 months of test drive operation costs (minus the startup / shutdown overhead). Meanwhile, they'll have had 6-12 months of margin improvements on the Model 3 in order to offset the cost of operating test drives once again.

Test drives were a demand lever. They've un-pulled that lever. It can be re-pulled later. Same with the referral programme, BTW.

There really is no downside to this decision they've taken. It's good for everyone. Including long-term investors, although it sucks for investors in the near-term because it's left everyone freaking out.

 

[Cherry Wine]

Did I miss something -- is it confirmed that test drives are a thing of the past? Or are we speculating based on store closures? If the latter, test drives could still be given via service centers, for instance.

 

[Dan Detweiler]

Over on the Model 3 Owners Club forum they have started a test drive database of sorts where you can put in your information if you are willing to give people test drives in your car and people can then be matched up with those looking for a ride. I signed up for the Atlanta area.

Dan

 

[omarsultan]

Which company puts software development in COGS ?

Well, the company I work for for one. We sell both embedded SW and stand-alone SW cross several lines of business and we track revenue and COGS (design, development, support, etc) for each. Claiming SW is 100% margin would obviously not a true statement as we have 1000s of SW engineers busily toiling away, and it would not be possible to manage the business and allocate/prioritize opex without a clear understanding of costs and ROI a given SW project.

 

[RobStark]

There really is no downside to this decision they've taken. It's good for everyone. Including long-term investors, although it sucks for investors in the near-term because it's left everyone freaking out.

I mostly agree.

But those employed at Tesla giving Test drives would mostly disagree.

There is a price to the chaos.

Including the feeling that maybe Tesla doesn't offer careers but only temporary employment. Is this 3 or 4 rounds of job cuts at Tesla in the last 12 months?

 

[jerry33]

Did I miss something -- is it confirmed that test drives are a thing of the past? Or are we speculating based on store closures? If the latter, test drives could still be given via service centers, for instance.

The guidance given was that they are stopping test drives and having a seven day return policy. There wasn't any elaboration, so that might mean anything from "no test drives" to "no test drives in the way we've been doing them". No one will know until they actually send instructions to the Galleries and Service Centres.

 

[Dan Detweiler]

Given age, girth, overall stiffness, I had to get in and out of an M3 before final purchase. I had already driven a Model S where the same issue existed. Now I'm "relearning" how to twist after side-saddle sit. Getting the last leg in is still a problem but a hand helps.

If I can do it almost anyone can. When TSLA hits $4,000 if I last that long (and still driving) will probably upgrade to an MX if refreshed.

I'm telling ya, head first entry is the back and knee saver. (that doesn't sound very good does it?) Seriously, I started using this method when I drove a TR6 and have used it ever since.

Dan